Wills and trusts are two important estate planning tools every physician should consider. They serve two different purposes and offer different protections and benefits, both during your lifetime and after your death. It’s important for doctors to know the difference between the two to understand which (or both) might be helpful to your planning goals. Below, we cover what a will is, what a trust is, and when physicians should consider each.
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What is a will?
A will is a legal set of instructions that dictates how you want your affairs handled and what you want done with your assets after your death. Wills can provide instructions in areas such as:
Naming an executor to carry out your wishes as outlined in your will
Determining how assets should be divided and who they will be left to, including charitable contributions
Gifting specific sentimental items (such as family heirlooms) or specific assets (such as your house) to individual people
Appointing guardians for minor children (and pets)
Providing instructions on how to handle your funeral or memorial service
Stating specific desires for medical decisions should you become incapacitated and unable to decide for yourself
Wills can easily be updated and revised multiple times as your situation changes throughout your life. For example, you can add beneficiaries when you welcome a new child to your family, and you can redistribute how your assets get divided among said beneficiaries. Wills must be signed (and witnessed) according to state law, so wills should be reevaluated when moving across state lines to ensure they align with the current local laws.
Related PSG resource:Â If you need to update your will, reach out to one of our estate planning attorneys for physicians.Â
There are several types of wills. A simple will is one of the most common types of wills because, as the name implies, it’s not complicated. While simple in design, it is still a power tool for estate planning, allowing you to direct the distribution of your assets and appoint guardianship for your children. Other types of wills include testamentary trust wills (will trusts), pour-over wills, and living wills (which is a type of advance directive). Different types of wills can work in conjunctions with trusts, which we cover in more detail below.
Learn more about different types of wills and estate planning.
Though a will can be a powerful tool in estate planning, a will by itself isn’t always the perfect fit for physicians. Many doctors also consider setting up a trust as part of their estate planning. For one, wills are subject to probate, though some assets–such as life insurance policies and retirement accounts–have the potential to bypass probate.
While probate laws vary from state to state, this process can be time intensive and expensive for your heirs, especially if you need to get a probate attorney involved, or if a family member contests your will after your death. In addition, probate happens through the legal system, and the probate proceedings become part of public record. This can be a privacy concern that physician families want to avoid.
What is a trust?
A trust is a legal arrangement that is established to hold your assets. You (the grantor) transfer the assets you want to hold in the trust to a trustee, who then manages the assets for the benefit of the stated beneficiaries. While a will activates upon your death, trusts can be set up and managed while you are still alive (known as a living trust).
Unlike with a will, assets held in a trust are not subject to probate, which can provide quicker distribution to the beneficiaries established for the trust, as well as more privacy. Trusts also cannot be contested.
There are two main types of trusts: a revocable trust (living trust) and an irrevocable trust. Each has their own pros and cons, which you can explore with our article on what doctors need to know about revocable trusts vs. irrevocable trusts. The important distinction is that an irrevocable trust cannot be changed or dissolved once it has been established, except in very limited situations. One advantage to an irrevocable trust is that the assets transferred into the trust become owned fully by the trust, and the irrevocable trust becomes treated like a separated tax entity.
Given the complexity of a trust, it is far more expensive to establish than a will. Trusts are also more difficult to revise once they’ve been established. And since assets are transferred into the trust, they often have to be actively managed, which requires more time and potential costs.
How physicians should decide between a will versus a trust
Both trusts and wills have pros and cons for physicians. When it comes to wills versus trusts, it isn’t always an either/or decision. Most physicians need a will, but not all physicians need a trust. Who needs what depends on several factors such as:
Type of assets owned
Value of assets owned
Who the beneficiaries are
Desires for management of assets
While more expensive to set up and manage, trusts offer greater protections for your beneficiaries. As doctors progress throughout their wealth building and path to financial independence, a trust can become a powerful tool for estate planning.
When does a doctor need a trust versus a will?
Consider establishing a will if any of the following apply in your situation:
You have minor children
You have a dependent parent or relative you provide support for
You have assets outside of a trust
You have specific desires for your end-of-life care
If you are single, early in your career, and don’t have any assets or any dependents, you may be one of the few physicians who doesn’t need a will–yet. But it’s important to establish one as soon as any of these conditions change.
As wills are typically less expensive, a will can be a good fit for medical students, residents, fellows, and early career doctors who currently have a small estate and don’t need the additional complexity of a trust. The more assets you amass and plan to leave behind, the more trusts can be beneficial to your asset protection strategy.
Physicians should consider a trust when any of the following apply:
You want a say in how your assets are managed/distributed after your passing
You have significant assets that you want to protect from creditors
You have real estate investment properties
You have business interests you wish to protect
You think your wishes may be challenged in court (you have issues with difficult family members)
You have a special needs child who will need to be taken care of through your estate
You have enough assets to trigger estate tax issues
There are different types of trusts that vary in complexity that might be able to help you with specific estate planning goals. Learn more about trusts and estate planning.
Do I need both a will and a trust?
A trust and a will can often work together for your estate planning. A pour-over will is one example of a way wills and trusts can work together. With a pour-over will, any assets you have outside of a trust you’ve already established are automatically transferred into the trust upon your death. With a pour-over will, you can help protect your beneficiaries from dealing with the probate process, while still maintaining ownership and control of your assets during your life.
Physicians could consider having both a will and a trust in several situations (see above for when to consider each), but especially if you have minor children, significant assets to protect, or several real estate properties.
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Our estate planning attorneys for physicians can help you establish wills, trusts, and other estate planning instruments such as power of attorneys and transfer on death instruments.
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Conclusion
The decision on having a will, a trust, or both is highly dependent on your personal situation and goals, but we hope the guidance above helps you as you pull together your planning. If you have a specific question, reach out to the hive mind in our online physician community for advice from other physicians who have faced similar situations.
If you could benefit from a will or trust, don’t wait. It’s easy to put off estate planning, but these instruments are critical to protecting the assets you’ve worked hard to earn, and for protecting your family in the event of your death. Reach out to an estate attorney or asset protection strategist today.
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