Wills and trusts can be extremely complicated, especially when they relate to one another or feed off of each other. You can certainly have both tools as part of your estate plan. Depending on your unique financial circumstances and personal preferences, it may make sense only to have a will. Moreover, there are some things that a will cannot do that a trust can, and vice versa. Are there ever situations where a trust can completely replace a will? Probably not.
Why Would I Want a Trust Instead of a Will?
The main reason that people prefer trusts instead of wills is that trusts do not have to be probated, which can be an expensive and time-consuming process. It can also be difficult for your loved ones in some situations. A probated will is also a matter of public record, which may not be desirable for some people. For these and and other reasons, some individuals choose to use an estate planning tool that will avoid the probate process -- a living trust.
In some situations, using a trust can also reduce or eliminate estate taxes, and a trust is especially helpful if you own real property in several states. Placing all of that property into the trust allows your loved ones to avoid opening probate in each of those states..
To set up a living trust, you simply draft the trust documents and then fund the trust. Preparing the materials alone will not ensure that your property avoids the probate process. You must then transfer property into the trust, or “fund the trust” to obtain this benefit.
The Connection Between Trusts and Wills
While trusts can be extremely useful, there are limitations. As a general rule, your living trust cannot and should not replace a will. If nothing else, your will provides a “catch-all” for any property that is not in your trust. That way, you can still dictate who gets what instead of relying on state intestacy laws to divide your property.
It may not be practical to put some assets into a trust. For example, moving items that are not titled, , such as jewelry or furniture, is difficult or sometimes impossible. Additionally, you cannot name a guardian for your minor children in a trust document; this can only be done in a will. Finally, some retirement plans do not permit trusts to be owners. You may be able to set out the trust as the beneficiary of the plan, but changing ownership often is not possible. Setting the beneficiary as a trust rather than a spouse, however, may have complicated tax consequences that need to be considered.
Can a Trust Replace a Will?
If you are wondering whether you can establish a trust and forego a will, the answer is likely no. Living trusts and wills pair nicely together, however and both beneficial tools you should be included in your estate planning.