What is the difference between a will & a trust—and do you need both?

You want to make sure your loved ones are taken care of after you're gone. And doing so requires thoughtful planning and having the right tools in place. As you look at your options, you may question the purpose of each plan and document. Take a will and a trust, for example. What's the difference? Is there anyone who needs a trust instead of a will, or vice versa? And can you have both?

Setting up a will or a trust can help prepare your estate so your beneficiaries have as easy a time as possible receiving their inheritance. Plus, you can avoid the complications that come with not having them in place and potentially can help your beneficiaries save on taxes.

Here's how these two options differ, what their unique advantages are, and when you may want to have both.

A will is a legal document that manages your estate by allowing you to detail how you want to distribute your property and possessions upon your death. If you have minor children, you can use a will to nominate a guardian for them and outline any care instructions. A will is also a great place to share your wishes for your memorial service or what you want to happen to your body after death.

If you don't have a will in place before you die, a probate court decides how to distribute your assets, and their decisions may not align with your wishes. Having a legally executed will can allow you to transfer your wealth strategically after you pass away. You can name your beneficiaries, what assets they can receive and who can execute your will to carry out your wishes. If your estate does end up in probate court, the executor of your will acts as the voice of your interests.

Even with a will in place, some states require your will to go through probate court, which is why it's important to have an executor in place.

A trust is a legal entity that contains properties to benefit the people or organizations you choose. A trustee of your choice manages the trust. The trust can be used to carry out your wishes regarding your estate, guide your children into spending and budgeting their inheritance properly, support a beneficiary with disabilities, protect assets from creditors and prevent families from fighting over how to divide up an estate.

A revocable trust can be revoked or amended until you pass away or become incapacitated. In this case, you have full control of the trust's assets until your death, and any income earned in the trust is distributed to you. Once you die, the revocable trust automatically converts to an irrevocable trust, and any assets are distributed per the trust's instructions.

Unlike a revocable trust, an irrevocable trust can't be changed. This means you can't make changes or updates to the trust, and once you transfer assets into it, you essentially give up ownership rights to those assets. The trustee becomes in control of the assets and administers the trust according to the trust document.

A CLAT makes it possible for you to make fixed payments to your favorite charities over the term of the trust. Once the trust expires, any remaining assets are distributed to the trust's beneficiaries.

If you have a child or other family member with special needs, you can set up a special needs trust to make sure your assets go toward their ongoing care.

When you create a trust, the trust document outlines the name of the person(s) who created it (i.e., grantors or settlors), the beneficiaries and how you wish to distribute your assets. It is important to note that the grantor names the trustee.

The main disadvantage of an irrevocable trust is that you can't change it and essentially lose control of any assets you place into it. A revocable trust is more flexible and private, so no details from the revocable trust become publicly known after you pass away. That said, irrevocable trusts have tax advantages that revocable trusts don't.

It's understandable if you want to protect the inheritance you're leaving to your beneficiaries by lowering their tax liability. With an irrevocable trust, you can remove assets from your taxable estate, which can help your beneficiaries avoid estate taxes. In contrast, with a will or revocable trust, estate taxes can apply if your assets surpass state and federal estate tax exemptions.

If you're worried about creditors coming after your estate, you may find an irrevocable trust gives you a sense of reassurance. These trusts can guard assets against creditor claims, whereas a revocable trust or will can't. It's harder for creditors to pursue claims against a revocable trust than it is with a will, but it's still possible.

Additionally, setting up a trust can be more expensive than setting up a will, and a trust doesn't make it possible to provide guardianship for minor children.

To better understand whether a will or a trust is the right fit for your estate, consider the advantages and disadvantages of each. The following chart highlights the key differences.

Many people believe you only need a will or a trust if you have a large number of valuable assets, but anyone can benefit from having an estate strategy in place. This is especially true for unmarried couples who don't have a clear legal claim to what they consider to be shared assets, families with children who have special needs and require ongoing care, and large families that may disagree over how to divvy up assets.

In some cases, the answer isn't to choose between a will or a trust but to have both in place. If you don't articulate how you want your estate divided, you may risk your loved ones fighting over how to manage your estate, which can lead to legal battles. You can use a will or a trust to designate your assets, help your family avoid spending time in court and make your wishes known. If you're looking to help your beneficiaries save on taxes, you may find that setting up both a will and an irrevocable trust can help you accomplish your goals.

It's also worth noting that if you have minor children, even if you have a trust that outlines your beneficiaries, you need a will to designate guardianship.

When it comes time to create a will or a trust, you can use the following tips to make the process more streamlined and effective.

You don't have to take on such a large task on your own. You can work with a financial advisor and an estate attorney to create an estate strategy that meets your goals and protects your beneficiaries.

An estate attorney can make sure your will or trust is set up the right way. A financial advisor also can help you maintain your will or trust and update it when necessary. For example, the birth of a new grandchild may cause you to update your plans, and a financial advisor can help you navigate those changes.

An estate attorney can help you document your will or trust plans properly and check that documents are legally valid and properly notarized. Tell your beneficiaries where these documents are so they don't have to search for them after your death.

Speaking of beneficiaries, you don't want to leave them completely in the dark about your plans. While final decisions regarding your estate are up to you, make sure your beneficiaries understand your plans and how to manage the assets you leave them.

Managing your estate is a big undertaking, and there are many factors to consider when making decisions regarding your estate. This is where working with a financial advisor can come in handy.

If you'd like support, connect with a local financial advisor who can offer insight into how both a will and a trust can factor into your future plans. They also can help you set up a will, a trust or both.