Is It Better to Have a Will or a Trust?

John Muth is a senior director in Sophisticated Planning Strategies at Northwestern Mutual.

Documenting what should happen to your money after you’re gone can help ensure that your wishes are honored and make things easier for your family. By making your estate planning a priority, you can avoid the challenges of having an unexpected death combined with no will being finalized.

Let’s say that a successful dentist had been working on his will and life insurance plan for his wife and family. Before the will was finalized and executed, the dentist went skiing and tragically died after hitting a tree. He left behind no life insurance payout and no finalized will or business agreement conveying the dental practice to his wife or children. As a result, his family had to move out of the home, and his spouse was left with significant debt and very few assets.

A will that lays out the orderly transfer of assets—including business interests—and a clear understanding of how the decedent’s debts will be addressed and financial assets conveyed to surviving family members can help your loved ones. It helps avoid the trauma of family members trying to find assets, financial statements and passwords to the decedent’s digital accounts when they are going through the grief of losing a loved one.

Both wills and trusts can be helpful estate planning tools, but they have some key differences. How do you decide which one is right for you? Here’s what you need to know about establishing a will vs. a trust—and how these important elements of estate planning are unique and different.

How does a will work?

A last will and testament details how you want your property to be dispersed upon your death. That includes your possessions and your financial assets. A will also clarifies whom you want to serve as guardian to any minor children.

You’ll likely draft your will with the help of an estate planning attorney, and certain assets without beneficiary designations will still have to go through probate after your death. This is a legal proceeding that authenticates the will and begins the process of distributing your estate. The probate process takes place in the courts and is therefore a matter of public record—and it can be both time consuming and costly. If you own property in different states, you may also be required to go through probate in each state, further extending the process and legal fees.

It’s also important to note that a will does not override the beneficiaries listed on your financial accounts, including life insurance policies and retirement accounts. If there’s a difference between what’s listed in your financial account vs. your will, the financial account will have the final word.

How does a trust work?

A trust is similar to a will in that it provides a road map for how you’d like your financial matters to be carried out after your death. But when you set up a trust, you establish a legal relationship with a trustee who will carry out your wishes for your assets on behalf of your beneficiaries. One of the many benefits of a revocable trust is that you can be the trustee while you’re alive. Upon your death or incapacitation, another trustee you appoint will be responsible for handling the investments and distributing your money as directed in the revocable trust.

Trusts can hold all sorts of assets, including:

• Liquid assets like savings and checking accounts
• Traditional investments or regular brokerage accounts
• Real estate
• Personal property
• Business interests
• Intellectual property
• Debts that are owed to you
• Safe deposit boxes

Will vs. trust

Unlike a will, a trust is private, so it doesn’t have to go through probate. This can reduce the likelihood of delays or the possibility that your financial plans will be contested. But keep in mind that any assets that aren’t covered in the trust will still have to go through probate.

Another key difference is that a trust addresses only the financial management of your assets. If you have children, it can provide direction for how they will be taken care of financially, but it doesn’t address other elements of their care—such as who will serve as their legal guardian.

A trust also offers more timing flexibility than a will, which distributes all your assets immediately once it’s through probate. This could leave your children or grandchildren with a large inheritance they may not be ready to handle. With a trust, you can choose to distribute an inheritance at certain milestones, such as when they graduate from college, get married or have their first child. You can also set standards that must be met to get the money.

Trusts are typically more involved and cost more to set up, but they also provide more oversight and control. That may be worth it if you:

• Have significant wealth.
• Are hoping to preserve your privacy.
• Want to streamline the probate process.
• Want to put guardrails around how and when your beneficiaries receive trust assets.

Think of a revocable trust at your death as providing post-mortem control and management of your assets. Upon your death, your revocable trust becomes irrevocable, and the provisions in your trust will be followed by the successor trustee. That person steps in to follow the trust distribution instructions.

Is a trust or a will better?

Consider your personal situation if you’re torn between a will and a trust. Depending on your assets and legacy goals, having both in your estate plan might be the best path forward.

For instance, if you have minor children, you can appoint a guardian for them through your will and outline the details of their financial care in a trust. Either way, it’s smart to seek professional advice concerning any financial and legal consequences. And don’t forget to review both documents annually to ensure that they still reflect your wishes. No matter what you choose, it’s also wise to establish medical and financial powers of attorney.

Advantages of a trust over a will

• Provides more flexibility: Trusts offer more control over how your assets are distributed. Your wealth can be passed to your beneficiaries during your lifetime if that’s how you want to structure it. If you opt for an irrevocable trust, your assets will also be protected from creditors.
• Maintains privacy: When a will goes through the probate process, that information is public. Trusts, on the other hand, are private. This allows you to distribute your assets away from the public eye.
• Expedites the probate process: Without a trust, your last will and testament will determine the fate of your assets after you’re gone. Going through probate court can be lengthy and expensive, which could create financial stress for your loved ones. Trusts allow for a quicker and smoother distribution of wealth.

Advantages of a will over a trust

• Simple and inexpensive to establish: Creating a will is relatively straightforward and inexpensive. After making a plan for your assets, you’ll choose an executor to carry out your wishes. This is known as guardianship.
• Easy to make changes: It’s wise to review your will at least once a year—or sooner if you experience a major life event like getting married or having a child. You can make updates or create an entirely new will if the need arises. On the other hand, certain types of trusts are difficult to modify.
• Goes beyond finances: Trusts are designed to lay out financial plans, but a will can address other important details—like who’ll serve as your child’s legal guardian if you pass away before they reach legal adulthood.

Deciding between a will and a trust can be complicated, especially if you have a large estate or unique financial needs. Having a financial professional in your corner can make the process easier. Your Northwestern Mutual financial advisor can provide personalized guidance along the way.

Financial Representatives do not render legal advice. Consult with a legal professional for legal advice that is specific to your situation.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.