• K. Joseph Hill

Will or Trust: What's the Right Choice?

Ready to plan for the future but not sure which path to take? Find the right choice for you.

One of the most common questions people have when they are considering an estate plan is whether a will or trust is the proper tool for them. While both are used to pass assets to desired beneficiaries, in Arizona, there are significant advantages and disadvantages for both.

What is a will?

A traditional will is a document in which the testator (the person creating the will) designates a personal representative to manage the transfer of the testator’s assets upon the testator’s death and lists his or her desired beneficiaries and which property each beneficiary is to receive. This can be done by specific instruction (“To Aunt Edna, I leave my 1976 Datsun B210”) or by fraction or percentage (“I leave the balance of my estate 100% to Uncle Jack”). A will does not become effective until the death of the testator.

One advantage of a will is that it is generally less expensive to create. Wills are also fairly easy to revoke or replace and do not require any specific title changes in property.

A disadvantage of a will-based plan is that if the value of the estate exceeds certain statutory limits ($75,000 in Arizona), the estate may be subject to probate. Probate is the legal process by which title to a deceased person’s assets are transferred to the designated beneficiary. Since probate is a court process and is a matter of public record, probate can become expensive and much privacy of the estate may be lost.

What is a trust?

In Arizona, a trust (most commonly, a “revocable living trust”) also provides instructions for distribution of assets, but unlike a will, the trust becomes effective as soon as it is created. The creator of the trust (the “trustor”) designates a person to manage the trust (the “trustee”). The initial trustee is usually the trustor. The trust document also specifies successor trustees to manage the trust should the initial trustee resign, become incapacitated, or pass away. After creating the trust, the trustor transfers his or her assets into the trust, where the assets continue to be managed by the trustee. When the trustor passes away, no probate is needed, as the trust continues to hold the assets. Those assets are then distributed by the trustee according to the trustor’s specific instructions.

The primary disadvantage of a trust-based estate plan is that it is generally more expensive to create. Another potential disadvantage is that since only those assets that are titled to the trust are shielded from probate, the trustor must be diligent in the handling of assets to ensure that all assets are properly titled to the trust once the trust is created. The trustor must also be sure any property acquired after the creation of the trust is likewise properly transferred to the trust.

Primary advantages of a trust-based estate plan are probate avoidance and privacy. Since trust assets are not subject to probate, the estate plan remains private. Another advantage is that during the trustor’s lifetime, he or she retains the ability to modify the trust or revoke it in its entirety. Still another advantage is that the trustor can specify how the assets should be managed for himself (should he become incapacitated) of for the benefit of beneficiaries after his death, without the need for court intervention. For example, the trustor may include specific instructions that a beneficiary not receive his or her share until a certain age, or may provide for distribution in specified lump sums, or may even leave the distribution to the discretion of the trustee, which can be very useful for a beneficiary with many creditors or a beneficiary with special needs.

How do I choose?

While wills and revocable living trusts are the most common estate planning tools, they are by no means the only options available in Arizona. And as with any legal decision, what is right for one person may not be appropriate for another. One should only enter into an estate plan after careful consideration of the risks and advantages of all options. The Law Office of K. Joseph Hill is happy to meet with you to discuss your unique individual situation and help you find the right solutions to your estate planning needs.

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