At least three times a week I am asked the difference between a will and a trust. There are a few differences, but first I always like to point out that a will requires probate to be effective. So, when planning for a client, I don’t often like to compare a will and trust, but rather a trust and beneficiary designations.
You can use both beneficiary designations and a trust to avoid probate, but the main reason a people choose a trust is control. To me, control is the best reason to plan with a trust. Legally, a trust is an entity that separates the control of assets from the use or benefit of those assets.
For families with minor children, I almost always recommend a trust. Without a trust, even using beneficiary designations, you cannot avoid probate. Minors cannot be in control of their own money, so a trust allows a legally responsible adult to make decisions over the assets for the benefit of the children. It then sets up ages or life events when the children get the money.
Another common reason I recommend trusts are when there is real estate involved. In Missouri, if a person has their name on real estate, their spouse also must sign off on any real estate transactions even if the spouse is not on the real estate. So, if a person leaves real estate to someone through a beneficiary deed (the way to put beneficiaries on real estate), everyone on the deed plus their spouses will need to sign for the property when it is inherited. Often, my clients would rather not involve the spouses or even have all beneficiaries make decision on the property. Instead, they do a trust where one person makes decisions on the real estate and multiple people have the use or receive the proceeds.
One of the final reasons clients use a trust is to control how the money is paid out. If a beneficiary is not responsible enough or has an addiction where the money would be harmful if the beneficiary had full access to the money. In those situations, the trust can allow another person to use the money for the beneficiary or to give out money in regular installments like an allowance.
There are, of course, other reasons I consider trusts. Family dynamics, contingencies, real estate. However, when it comes down to it, the reason my clients choose a trust over a will or, more appropriately, beneficiary designations is it gives them control over how the money will be left.