In estate planning, wills and trusts are both essential tools for carrying out an individual's final wishes, but one is not a replacement for the other. Everyone should have a will drafted before they die, even those who create trusts, reports CNN Money. Both instruments have advantages and downfalls.
A basic estate plan typically includes a will, power of attorney assignment and a health care proxy, states CNN Money. Many individuals also create trusts to manage more complicated estate matters. Assets such as real estate, cash and investments are transferred into a trust, along with specific instructions as to how and when the assets are distributed.
Avoiding probate is the most common reason individuals set up trusts, explains AARP. Unlike wills, trusts are immediately administered without the costs and hassles of probate court. Trusts also protect the family's privacy by eliminating public probate records. Creating a trust can be expensive, however, especially in comparison to wills.
There are several types of trusts, but revocable living trusts are used most often, notes AARP. This type of trust takes effect while an individual is still living and can be changed or dissolved any time prior to passing. A living trust can also serve as medical and durable powers of attorney. Moderate to large estates that include a variety of assets typically benefit the most from trusts, while wills alone typically suffice in smaller estate plans.