Trusts vs. Wills – A Guide

Trusts and wills are both popular estate planning tools for managing and distributing assets after death. There are some similarities and many differences between trusts and wills. We’ll highlight 10 of the most frequently asked questions about trusts and wills.

1. What is a trust and what is a will?

Let’s start with the fundamentals. Trust: A legal arrangement in which a person, called the grantor or settlor, transfers assets to a person, called the trustee, to manage and distribute the asset for the benefit of one or more beneficiaries. A trust can be established during the grantor’s lifetime (a living trust) or at the time of the grantor’s death (a testamentary trust). The grantor can (and often is) also the trustee. And the trustee can also be a beneficiary. Indeed, for a living trust, the most common scenario is for the grantor to also be the trustee and the beneficiary. Will: A legal document that sets forth a person’s wishes regarding the distribution of their assets after death and nominates an executor (or Personal Representative) to manage these matters. A will can also nominate guardians for minor children and establish trusts for beneficiaries. A will only takes effect after the person’s death and the asset, which passes via a will, goes through the probate process, which is the court-supervised process of administering the estate. For a more comprehensive list of estate planning definitions, check out our article “The Estate and Trust Cast of Characters”.

2. What is the difference between a trust and a will?

A will is a document that tells others what you want to happen to your property and assets when you die. It only goes into effect after you die, and a court oversees the distribution of your assets. A trust, on the other hand, often takes effect during your lifetime. You can put assets into a trust while you’re alive or after you die, and it’s managed by someone called a trustee. One benefit of a trust is that it can avoid the court process of probate, which can be lengthy and expensive. This is because the trust continues to exist after the death of the grantor. Therefore, the assets the grantor transferred into the trust during his/her lifetime remain in the trust. For example, say you want to leave your home to your child. If you retitle your home into a trust during your life, your child can receive the house after your death without going through probate. However, if you leave the house to your child in a will, your child may have to go through probate before receiving the house.

3. Can a trust or a will help me control how my assets are distributed after I die?

Yes, both a trust and a will will direct how your assets are distributed after you die. By creating a will or a trust, you can specify who will receive your assets and how they will be distributed. For example, if you have children from a previous marriage and want to ensure they receive a specific portion of your estate, you can include this in your will or trust. Alternatively, if you have a charity or organization you want to support after you pass away, you can include this in your estate plan as well.

4. Which one is better: A trust or a will?

Both documents are great for their specific purposes. But whether a trust makes sense for you depends upon your specific situation. A trust may be better for someone who wants to avoid probate, minimize taxes, or provide ongoing management for their assets after death because of concerns about a beneficiary’s ability to handle control of an inheritance. A trust may also be particularly important for blended families to preserve inheritance by children from a prior marriage. Additionally, a trust may be particularly helpful for clients who own real estate in more than one state. On the other hand, a will is a far simpler approach. It may be perfectly suitable for a nuclear family with relatively straightforward assets and beneficiaries who are all of age and responsible.

5. Can I have both a trust and a will?

Yes, you can have both a trust and a will. Indeed, if you have a trust, you will always need a very basic will if to do nothing else than: (1) appoint a Personal Representative of your estate; and, (2) act as a safety net to direct all assets after you pass to your trust. If you have a will, you may choose to create a trust embedded within your will (called a testamentary trust) which would only come into existence at the time of your death and would be the repository of an inheritance for a particular beneficiary.

6. Are there any tax advantages to having a trust instead of a will?

Yes, but the tax advantages are often overstated and misunderstood. Certain types of trusts can protect assets held in those trusts from exposure to estate taxes. However, these types of trusts are often “irrevocable trusts” whereby the grantor of a trust would surrender control of the trust and could not serve as a trustee of the trust. If the grantor of a trust desires the flexibility to make changes to the trust and to serve as trustee, then the assets held in the trust will not be exempt from estate tax. Depending upon a beneficiary’s income level and tax bracket, there may be a tax benefit to a beneficiary for an inheritance to be held in trust over time versus distributed outright to the beneficiary via a will. If a beneficiary must pay income tax at their personal tax rate on income earned by an asset, this may be higher (or lower) than the income tax rate that would be assessed if that same asset was held in a trust and available for the beneficiary.

7. Which one provides more privacy: a trust or a will?

A trust may provide more privacy than a will because it is not required to be filed in court, whereas a will becomes a public record when it goes through the court process. This means that anyone can access information about your assets, debts, and beneficiaries. In contrast, a trust can keep your financial affairs private because it is a private document that does not need to be filed in court. Moreover, probate court filings detailing the assets of the probate estate are a matter of public record. On the other hand, only beneficiaries of a trust are entitled to an accounting of trust assets and transactions.

8. Which one is more expensive to set up: a trust or a will?

Setting up a will is generally less expensive than setting up a trust. Simply put, a will requires less drafting time and work than a trust. They are simpler documents to create. Additionally, there are other expenses in creating a trust, including the cost of retitling real estate into the trust. However, these transfers of real estate are exempt from transfer and recordation tax and generally can be done for the cost of the deed alone. However, it’s important to keep in mind that the costs of administering a will after a person’s death, such as probate fees and other expenses, will add up. Almost always the cost of the probate fees will far eclipse the increase in cost between a trust and a will.

9. Can I make changes to a trust or a will?

Generally, yes. If your trust is a “revocable trust” meaning that you have retained the right to amend your trust during your life, then yes, you can make changes to the trust. Similarly, you can always make changes to your will. For basic changes, a trust can be changed with an “amendment” and a will can be changed with a “codicil”. These documents are often 1-2 page documents that serve as counterpart documents to the main trust or will. For more substantive changes, a trust can be changed with an “amendment and restatement” and a will can be fully replaced. Here, you would replace the existing trust or will with an entirely new document.

10. Do I need an attorney to help me draft a trust or will?

Recognizing that we are biased, the short answer is yes. So many things can go wrong with an incorrectly-drafted, do-it-yourself will or trust, that most planning attorneys would agree that no estate planning at all is better than a faulty DIY plan. Attorneys can also help you understand decisions that you have within the documents and establish a plan that will best ensure the smooth administration of your estate or trust after your death. Moreover, if your plan may create litigation down the road, an attorney can help “bulletproof” the plan so that it is best equipped to survive any later challenge.

How can we help you develop your estate plan? Reach out to practice group chair Jeremy Rachlin at (301) 656-1177 x305 or jrachlin@bulmandunie.com if we can assist you.

Daniel Wyatt authored this post.  Danel is a third-year law student at George Washington University School of Law.  He is presently a law clerk at Bulman Dunie and he is assisting attorneys and staff with planning and probate matters.  Daniel will be graduating from law school in May 2023 and will be sitting for the Maryland Bar Exam in July 2023.