How Wills and Trusts Work Together, and Whether You Need Both
- Nisha Mehta, MD
- 4 days ago
- 9 min read
Questions about estate planning are often asked about on our physician communities. When we covered the differences between a will versus a trust, we noted that it often isn’t an either/or situation where physicians choose between having a will versus having a trust. Wills and trusts can cover different aspects of estate planning and asset protection, and can often work in tandem for the best asset protection and estate planning. Below, we cover ways wills and trusts work together to help doctors put together the best estate planning strategy for their specific situation.
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The different purposes of wills and trusts
To understand how wills and trusts work together, it’s helpful to know the different objectives of these two common estate planning vehicles, as well as their similarities.
Both wills and trusts can help you ensure your assets are distributed as you wish when you pass away, though they do so through different means.
A last will and testament, commonly called a will, is a legal document that outlines who receives the properties and other assets of your estate after your death. You will name an executor to ensure your wishes are carried out per the terms outlined upon your passing.
A trust is a more detailed agreement that establishes a separate legal entity run by a trustee who manages your assets based on your instructions. The most common trust utilized by individuals and married couples is a revocable living trust that allows the individual who established the trust (the grantor) to also be the initial trustee and initial beneficiary.
When you establish a living trust and fund assets directly into the trust, these assets transfer during your lifetime, which can have implications for privacy considerations, asset protection, and estate planning.
Revocable and irrevocable trusts have different rules and thus different implications. When you transfer assets into an irrevocable trust, the trust becomes the legal entity who owns them. With a revocable trust, you maintain full control over them.
Learn more about the differences between a will versus a trust.
Physicians can use both wills and trusts to create a comprehensive asset protection and estate planning plan.
Wills and trusts can both work together to avoid probate
Probate is a court-supervised process to handle paying off any debts or obligations before your assets are distributed according to your will. While some assets, such as life insurance policies and retirement accounts, can bypass probate and go directly to the designated beneficiaries, many other assets transferred based on the directions of your will cannot. Probate is a public process that can be drawn out and expensive.
While not all trusts can help physicians completely avoid probate, certain ones can and others can help ease the probate process to speed it up and simplify it.
One of the benefits of irrevocable trusts (similar to revocable trusts) is that they can bypass the probate process, since with irrevocable trusts the ownership of the assets has already transferred out of the control of the grantor (the person who opened and funded the trust).
Physicians may not wish to transfer certain assets into irrevocable trusts during their lifetime. Revocable trusts offer greater flexibility than irrevocable trusts and allow physicians to appoint themselves as trustees to maintain control over the assets until their death. With a revocable trust, physicians can still help their beneficiaries avoid the probate process.
Learn about irrevocable versus revocable trusts.
While assets outside of a trust can still be subject to probate, physicians can use a pour-over will to transfer assets into a trust upon their death to help simplify the probate process and avoid issues during probate.
How wills and trusts can work together to account for all assets owned
Physicians who establish trusts can dictate how assets within the trust are distributed, both during their lifetime and after their passing. If physicians have a trust but don’t have a will, any assets they retain ownership of outside the trust aren’t covered. In this situation, your remaining estate is subject to intestate succession laws established by your state, which means the state helps decide how your assets are distributed.
Think of your will as a backstop, providing an extra level of protection when coupled with a trust. For example, you might choose to leave your personal residence outside of your living trust while you’re alive, or you might have a personal checking account that isn’t titled to your trust. Having both a will and trust can ensure these assets are transferred to your designated beneficiaries as desired.
With a will, you can also leave specific items, such as those with high sentimental value, to a specific beneficiary who might not be a primary beneficiary of your trust. For example, you may wish to leave a certain family heirloom to your niece, while you wish for other assets, such as your house and brokerage account, to be disbursed between your daughter and son.
What is a pour-over will and how does it work with a trust?
A pour-over will is a perfect example of how wills and trusts can work together. A pour-over will is a type of will that automatically transfers any assets you personally own into a previously established trust at your passing. It can act as a safety net for any assets you accidentally forgot to transfer into a living trust, as well as others you left out intentionally.
While a pour-over will doesn’t allow your remaining estate outside of the established trust at the time of your death to avoid probate entirely, it helps ensure these assets remain safe and are passed on to your beneficiaries as you wished. A pour-over will can also make the probate process easier and help avoid complications.
Once assets are transferred into the trust through a pour-over will, they will receive the same asset protection, privacy, and tax benefits a trust provides. At the time of your passing, a revocable trust will typically become an irrevocable trust.
A pour-over will is not a standard will, and you will need to have a trust established to take advantage of one. We highly recommend working with an estate planning attorney to help you establish both.
Wills and trusts can work together to care for your children after passing
As mentioned above, wills and trusts are two separate estate planning vehicles and can serve different purposes. For example, a trust can allow physicians to add stipulations and conditions around how funds and assets are distributed. You may wish to set provisions where your children inherit certain amounts at certain ages (such as at the age of 21) or at certain life benchmarks (such as graduating college or getting married) or a set amount every month or year. This can be especially beneficial for minor children or to help care for children with special needs.
A will, however, can establish guardianship for your minor children, which a trust can’t do. Doctors may wish to name a certain family member guardian of their children with their will, and then use their trust to establish a different family member as trustee to help distribute the assets accordingly for the care of their children after their passing.
A will can also help establish care for pets or other dependents as well.
Wills and trusts can work together to manage and maintain your current assets
A will can be a great estate planning tool to help with legacy planning for your beneficiaries, but it doesn’t provide any assistance to you in a situation where you might become incapacitated. Assets covered under wills are only handled after your passing. A will cannot dictate who will step in to manage your assets, such as your rental properties, if needed while you are still alive.
A trust, however, can. With a living trust, you can name yourself as the trustee to continue to manage the assets during your lifetime. You can also name a successor trustee, who can assume these responsibilities should you become incapacitated. This successor trustee can manage the trust properly in your stead, and can work with your health power of attorney (another estate planning document doctors should have) to ensure you and your assets are cared for according to your wishes.
Tax and legacy planning with both a will and trust
A will can help physicians with legacy planning by outlining how they want their assets distributed, but it isn’t always the most tax efficient solution, during your life or after your passing. And as we’ve covered above, assets transferred under the direction of a will are typically subject to probate, which can be an expensive and timely process. Estate taxes can also come into effect for high net worth individuals.
Coupling a will with a trust, especially an irrevocable living trust, can help physicians with tax-efficient estate planning. Income from assets owned within an irrevocable trust, such as investments, can have different taxation rules versus owning it personally. Income earned by these assets would no longer count as personal income and thus could be taxed at different, potentially lower rates. While a revocable trust generally doesn’t offer potential tax benefits while you’re alive, a revocable trust and will can both offer a step-up basis upon your death that adjusts the cost basis for inherited assets such as stocks and properties, and thus potential capital gains your heirs might pay.
With the different taxation rules depending on the type of trust, we recommend working with an estate planning attorney who can help you formulate the best overall estate planning plan for your specific situation.
What happens if a will and trust conflict?
While there are advantages to having both a will and trust in place, it is possible to have conflicting guidance between them. For example, you might leave your house to your only child under the terms of your will, but you may have already transferred your residence into a living trust with other beneficiary guidelines as part of your asset protection strategy.
In situations where you have a trust that’s already established, the trust will typically prevail. This comes down to the fact that when you establish a trust, you are creating a separate entity. A revocable trust generally becomes an irrevocable trust upon your death, and assets titled in the name of an irrevocable trust are no longer owned by you. Thus, these assets aren’t a part of your estate to be dictated by the terms of your will.
An exception is when you have established a trust and intend to place an asset within it, but the asset has not been successfully transferred and retitled to the trust. In this situation where you still personally own the asset, the asset remains part of your estate, and your will will likely override the intention behind the trust. A pour-over will that automatically transfers remaining assets into an existing trust at the time of your death can be a way to help prevent potential conflicts.
Conclusion
While not every physician may need a living trust, it is a popular tool for those with sizable assets and for those who wish to add a layer of privacy protection to their assets they own. For doctors who can benefit from a trust, using both a will and a trust can provide a comprehensive plan to help manage your estate and your legacy planning.
A living trust can be established during your lifetime to provide privacy and asset protection while helping your heirs avoid probate. A trust can also help establish care and management of your assets should you become incapacitated.
A will compliments a trust by providing insights for any assets that you own outside of a trust, while providing the ability to leave certain items specifically to intended beneficiaries and establishing guardianship for your minor children. A pour-over will, in particular, can be a useful estate planning tool for doctors to couple with a trust.
Additional estate planning resources for physicians
If you need help drafting a will or establishing a trust, we have a directory of attorneys, including estate planning attorneys, used to working with physicians who can help.
A good estate planning attorney can also help you navigate any issues that may arise as the owner of an estate, a trustee, or a beneficiary.
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