Will vs. Trust: What Do You Need? Cost, Process and Uses - NerdWallet (2024)

In general, you need a will in order to specify guardians for minor children in the event of your death.

In some states, estates under a certain value don’t need to go through probate. Thresholds vary by state. The probate process can be longer and more complicated if you don’t have a will. You likely need a will if your estate is over the threshold in your state.

You may not need a will at this time. A will is helpful to tell your loved ones where you want your personal belongings to go, but it may not be necessary for legal purposes if you don’t own real estate or any assets above the threshold that requires the involvement of the probate court in your state.

Even if you have a trust, you may still need a will if you want to leave instructions for assets that didn’t make it into the trust. One strategy: A pour-over will works as a contingency alongside a living trust. It directs everything in your estate over to the living trust when you die. People use pour-over wills as a backstop in case some of their assets didn’t make it into the trust before they died.

For example, if you removed your home from the trust during a refinance and never retitled back into the trust, a pour-over will can transfer the home back into the trust if you happen to die when the house is still outside the trust.

The federal estate tax doesn't apply to most estates, but you may consider an irrevocable trust if your estate is big enough to trigger federal or state estate taxes. The federal estate tax ranges from rates of 18% to 40% and generally only applies to assets over $12.92 million in 2023 or $13.61 million in 2024. Some state estate taxes start as low as $1 million.

An irrevocable trust permanently removes assets from your estate and gives them to the trust. This irreversible transfer of ownership thus takes the assets out of your possession in the eyes of the IRS, leaving you with a smaller estate (and, therefore, possibly less estate tax). You may have to pay gift taxes on your transfers to the trust. Keep in mind that irrevocable trusts are permanent once they’re signed and funded, so the assets in the trust, and the beneficiaries you name, cannot be changed.

You may benefit from a revocable living trust. This type of trust allows you to change the beneficiaries and assets as long as you’re alive and physically and mentally able to do so. If you become unable to manage the trust, the trustee you chose can take over for you.

Revocable living trusts ensure that your assets are managed according to your wishes if you fall ill, lose mental capacity or even are out of the country for an extended time.

You may benefit from creating a special needs trust. This kind of trust can financially support a child with a disability or functional needs without disqualifying them from needs-based government benefits such as Medicaid or Supplemental Security Income (SSI).

You may want an irrevocable trust. Creditors are able to make claims on estates even if there is a will or living trust in place, though it is often harder to make a claim against assets in a living trust. Only an irrevocable trust can guard assets from creditor claims. The grantor of a living trust is still considered the owner of the assets.

You might want to set up a spendthrift trust or an educational trust. If you’re concerned about how (or how quickly) your heir will spend their inheritance, a spendthrift trust can include specific language that restricts the timing of access to your assets and sets rules for how to spend the assets. It can also help protect assets from creditors if your beneficiary has debt.

You might benefit from a trust. Assets held in trust aren’t subject to probate court like wills are. They’re also more likely to be set up with the help of an estate attorney, which can give them more legal validity.

Trusts are also effective once signed and funded, and if they’re revocable, can be updated throughout your lifetime. This means that they’re less likely to be successfully challenged than a will, because it’s harder to argue that a trust is outdated, made at a time when the grantor was not of sound mind or made under the influence of someone else.

You may benefit from a testamentary trust. This is a trust created by the terms of your will after your death. For example, a will may stipulate that a trust be created to help care for minor children until they turn 25 years old. You can include multiple testamentary trusts in your will, including for charitable donations.

You may benefit from a charitable lead trust or a charitable remainder trust. Charitable lead trusts support a charitable organization for a set period of time, and then it passes the rest to the grantor’s beneficiaries.

Charitable remainder trusts are the opposite: they pay an income to the donor or beneficiaries for a set period of time, and then give the remainder to a charity. Some charitable trusts can qualify for tax-exempt status if they meet certain requirements.

You may want to set up a qualified terminable interest property (QTIP) trust. The assets in this type of testamentary trust support a surviving spouse with consistent income, then go to your chosen beneficiaries (usually children) when the surviving spouse dies.