Wills Vs Trusts: What’s the Difference?

Estate planning is a vital component of financial security for individuals and families. Two common tools used in estate planning are wills and trusts, each serving distinct purposes with unique advantages and limitations. Understanding the differences between these two legal instruments can help you make informed decisions about how to protect your assets and provide for your loved ones after you’re gone.

Key Differences Between Wills and Trusts

A will and a trust are both essential estate planning documents, but they function differently and serve different purposes. Let’s examine their fundamental differences to help you determine which might be right for your situation.

A will, formally known as a “last will and testament,” is a legal document that specifies how you want your assets distributed after your death. It allows you to name beneficiaries for your property, designate guardians for minor children, and appoint an executor to carry out your wishes. Wills only take effect after death and must go through probate court, a public legal process that validates the will and oversees asset distribution.

A trust, on the other hand, is a fiduciary arrangement that allows a third party (the trustee) to hold and manage assets on behalf of beneficiaries. Unlike wills, trusts can take effect during your lifetime and continue after death. There are various types of trusts, but the most common is a revocable living trust, which can be altered during the grantor’s lifetime. Trusts generally avoid probate, offering greater privacy and potentially faster asset distribution.

Probate Process

One of the most significant differences between wills and trusts concerns the probate process. Wills must go through probate, which can be time-consuming and costly in New York. During probate, the court validates the will, pays off creditors, and oversees the distribution of assets to beneficiaries. This process typically takes several months to a year or more in New York, depending on the complexity of the estate and whether any challenges arise.

Trusts, particularly revocable living trusts, typically avoid probate entirely. Since the trust already owns the assets (rather than the deceased individual), there’s no need for court involvement to transfer ownership. Assets can be distributed to beneficiaries according to the trust’s terms without court oversight, often resulting in a faster and more private transfer.

In New York, where probate can be particularly complex due to busy courts and high legal fees, this distinction becomes especially important for those with substantial assets or concerns about privacy.

Privacy Considerations

Privacy represents another crucial difference between wills and trusts. When a will enters probate, it becomes a public record that anyone can access. This means that details about your assets, beneficiaries, and the specifics of your estate become publicly available information.

Trusts offer significantly more privacy since they generally don’t go through probate. The terms of your trust, including what assets you owned and who receives them, remain private. In high-net-worth situations or cases where privacy is a priority, this confidentiality can be a compelling reason to choose a trust over a will.

For New York residents concerned about privacy, this distinction is particularly relevant given the high-profile nature of many estates in the state and the relatively easy access to public records.

Control Over Assets

Wills and trusts differ substantially in terms of when they take effect and the control they provide. A will only becomes effective after death, providing no protection or management of assets during incapacity. If you become unable to manage your affairs before death, a will offers no mechanism for asset management.

A trust, particularly a revocable living trust, can be effective immediately upon creation and funding. This means that if you become incapacitated, your chosen trustee can manage the trust assets without court intervention. This continuity of asset management can be invaluable for ensuring your financial affairs continue smoothly even if you’re unable to handle them yourself.

For many New Yorkers, especially those with complex financial portfolios or business interests, this ongoing control represents a significant advantage of trusts over wills.

Costs and Complexity

The cost and complexity of establishing and maintaining wills versus trusts represent practical considerations for many people. Creating a basic will is generally less expensive upfront than establishing a trust. A simple will in New York might cost a few hundred dollars when drafted by an attorney, while a comprehensive trust could cost several thousand dollars.

However, this upfront cost comparison doesn’t tell the whole story. When considering long-term expenses, trusts may actually save money by avoiding probate costs, which in New York can be substantial. Probate fees, executor commissions, and attorney fees during probate can quickly exceed the initial cost difference between creating a will and establishing a trust.

Trusts are typically more complex to set up and require active management, including formally transferring assets into the trust (funding the trust). This process demands more immediate attention and ongoing maintenance compared to a will, which requires less active management during your lifetime.

When a Will Might Be Better

Despite the advantages that trusts offer in many situations, there are circumstances where a will might be the more appropriate choice for New York residents. Understanding these scenarios can help you make the right decision for your specific situation.

If your estate is relatively simple and modest in value, a will may be sufficient. New York allows small estates (generally valued at $50,000 or less of personal property) to go through a simplified probate process called “voluntary administration.” In these cases, the additional cost and complexity of establishing a trust might not be justified.

Young individuals or families just starting out who have not accumulated significant assets might find that a will serves their needs adequately. As your estate grows and becomes more complex, you can always consider establishing a trust later.

If your primary estate planning concern is naming guardians for minor children, a will is essential. While trusts can manage assets for minors, only a will can legally designate who will raise your children if you and their other parent die before they reach adulthood. This is a critical function that New York parents should not overlook, regardless of whether they also establish a trust.

When a Trust Might Be Better

There are several situations where a trust offers clear advantages over a will for New York residents. Recognizing these circumstances can help you determine if a trust should be part of your estate plan.

If you own property in multiple states, a trust can help avoid the need for probate proceedings in each state where you own real estate. For New Yorkers who maintain vacation homes in Florida, Connecticut, or other states, this can represent significant savings in time and legal fees.

If privacy is a major concern, a trust offers confidentiality that a will cannot. This is particularly relevant for high-profile individuals or those with substantial wealth in New York who prefer to keep their financial affairs private.

For individuals with complex family situations, such as blended families or beneficiaries with special needs, trusts offer more sophisticated options for asset distribution and management. A trust can establish specific conditions for inheritance and provide for long-term care of dependents with special needs without jeopardizing their eligibility for government benefits.

If you own a business, a trust can facilitate a smoother transition of business ownership and management. This is especially important in New York’s competitive business environment, where maintaining operational continuity can be crucial to a business’s survival.

Using Both Wills and Trusts Together

Many comprehensive estate plans in New York utilize both wills and trusts to maximize benefits and ensure complete coverage of all contingencies. These legal instruments can work together to create a more robust estate plan.

Even if you establish a trust, you’ll still need what’s called a “pour-over will.” This type of will serves as a safety net to catch any assets that weren’t transferred to your trust during your lifetime. It directs that these assets should be “poured over” into your trust after death, ensuring all your property is ultimately distributed according to your trust’s terms.

A pour-over will is also necessary to name guardians for minor children, as trusts cannot perform this function. For New York parents, this makes a will an essential component of estate planning regardless of whether they also establish trusts.

Working with an experienced New York estate planning attorney can help you determine the optimal combination of wills, trusts, and other legal instruments to meet your specific goals. The right approach often involves creating complementary documents that address different aspects of your estate planning needs.

Tax Implications of Wills vs. Trusts

Understanding the tax implications of wills and trusts is crucial for New York residents, as the state has its own estate tax in addition to federal estate taxes. While neither wills nor trusts automatically provide tax advantages merely by their structure, certain types of trusts can be designed specifically for tax planning purposes.

New York imposes its own estate tax on estates valued above a certain threshold (approximately $6.11 million in 2023), which is lower than the federal exemption. This means that New Yorkers may face state estate taxes even if they’re exempt from federal estate taxes. Certain irrevocable trusts can be structured to reduce exposure to both New York and federal estate taxes.

Trusts like Qualified Personal Residence Trusts (QPRTs), Grantor Retained Annuity Trusts (GRATs), and Charitable Remainder Trusts can provide significant tax advantages in the right circumstances. These specialized trusts can remove assets from your taxable estate while still providing benefits to you during your lifetime.

It’s important to note that basic revocable living trusts generally don’t provide tax advantages, as assets in these trusts remain part of your taxable estate. The tax benefits come primarily from irrevocable trusts specifically designed for tax planning. Working with an estate planning attorney who understands both New York and federal tax laws is essential for effective tax planning.

Common Misconceptions About Wills and Trusts

Several misconceptions about wills and trusts persist among New York residents, potentially leading to suboptimal estate planning decisions. Clarifying these misconceptions can help you make more informed choices.

Many people believe that trusts are only for the wealthy. While trusts do offer particular advantages for large estates, middle-class families in New York can also benefit from trusts, especially when considering the high cost of probate in the state and the desire to avoid guardianship proceedings in case of incapacity.

Another common misconception is that creating a trust automatically protects your assets. In reality, a trust only controls assets that have been properly transferred to it. Many people create trusts but fail to fund them by retitling assets in the name of the trust, resulting in those assets still being subject to probate.

Some people believe that once they create a will or trust, their estate planning is complete and never needs revisiting. In reality, estate plans should be reviewed regularly, especially after major life events such as marriages, divorces, births, deaths, or significant changes in financial circumstances. New York law changes over time as well, potentially affecting how your estate plan functions.

Need Help With Your Estate Plan in New York?

Estate planning is a complex process that requires careful consideration of your unique circumstances, goals, and the specific laws of New York State. The choice between a will and a trust—or using both together—depends on your individual situation, including the size of your estate, your privacy concerns, your family dynamics, and your long-term objectives.

As estate planning attorneys in New York, we at Zeus Estate Planning can help you navigate these important decisions and create a comprehensive plan tailored to your specific needs. Our experienced team understands the intricacies of New York estate law and can guide you through the process of establishing wills, trusts, and other essential estate planning documents.