Do I Need Both a Will and a Trust?

You've read up, you're leaning toward a trust, and it sounds like the trust replaces the will entirely.

A trust only controls what's actually inside it, and it can't do one of the most important jobs a plan has: naming guardians for minor children.

Why you still need a will

Yes. It's called a pour over will, and it does two things a trust can't. It catches anything you never moved into the trust and directs it there, and it's where you name guardians for your kids. Think of the trust as the main structure and the pour over will as the safety net underneath it. Every Inhira trust plan includes one.

Different Functions of Wills and Trusts

A will and a trust serve distinct purposes, and understanding these can help you decide what fits your situation best. A will, for example, outlines how you want your assets distributed after you pass away. It's especially crucial for naming guardians for minor children, something a trust alone can't do. In contrast, a trust takes effect during your lifetime and can manage your assets both while you're alive and after you're gone. This dual capability makes it a valuable tool for handling complex estates or ensuring privacy, as trusts generally avoid probate, the public court process that distributes your assets after death.

Hypothetical Scenario: The Case for Using Both

Let's say you own a $400,000 home in California, have two young children, and a variety of investments. A trust allows you to place the house and investments into it, managing these assets and keeping them out of probate, which could save your beneficiaries both time and money. Typically probate costs can range from 3% to 7% of an estate's value, meaning a $400,000 home could incur $12,000 to $28,000 in probate fees if not protected by a trust. Meanwhile, your will, specifically a pour over will, acts as backup. It catches any assets inadvertently left out of the trust and names a trusted family member or friend as the guardian of your kids.

Tax Advantages and Planning

Using a trust alongside a will can also offer tax efficiencies. Trusts can facilitate strategies that reduce estate taxes for larger estates. While a basic will typically doesn't address these concerns, a trust can be tailored to include such strategies. This feature can be significant if you have a substantial estate or expect it to grow. Keep in mind, though, that trusts require active management. Updates in laws or your financial situation may require adjustments to ensure it aligns with current goals.

Flexibility and Control

A trust provides greater flexibility and control over your assets, even beyond your lifetime. You can specify terms and conditions for how and when beneficiaries receive distributions. If you wish for funds to be used for educational purposes or distributed upon meeting certain age milestones, a trust can accommodate that. This level of detail helps ensure that your intentions for your legacy are respected and adhered to, providing peace of mind that your assets will be managed in alignment with your wishes.

Common questions

Q: Why can't a trust name guardians for my children? A: Naming guardians is a function of a will, as it deals with personal matters beyond asset management, which a trust handles.

Q: What happens if I don't use a pour over will? A: Without a pour over will, assets not placed into the trust may go through probate, and guardians for minors cannot be set through a trust.

Q: Is setting up a trust complicated? A: Trusts are more complex than wills but offer benefits like privacy and probate avoidance. They require careful setup and management.

Q: Can a living trust save on taxes? A: Yes, trusts can incorporate strategies to minimize estate taxes, though they must be properly structured to do so.

Q: Do I need to update my trust over time? A: Yes, changes in personal circumstances or laws may require updates to keep your trust effective and aligned with your intentions.

Still sorting out which document does what? Read What's the Difference Between a Will and a Trust?.