Free Guide to Estate Planning Basics

Understanding Wills and Trusts: Two Fundamental Estate Planning Tools

A will and a trust are both legal documents that direct how your property and assets should be distributed after you pass away, but they operate in very different ways. Understanding the distinctions between these two tools is crucial for making informed decisions about your estate plan.

Learn About Pennsylvania Medicaid Programs and Requirements →

A will is a written legal document that specifies who will receive your property, money, and personal belongings after your death. It also names an executor—the person responsible for carrying out your wishes and managing your estate through the probate process. In your will, you can name a guardian for minor children, specify funeral preferences, and leave instructions about specific items or amounts of money to particular people. For example, you might write in your will that your daughter receives your house, your son receives your vehicle, and $50,000 goes to your favorite charity. A will only takes effect after you die, and it must go through probate court before assets can be distributed.

A trust, by contrast, is a legal arrangement where you (the grantor) transfer ownership of your assets to a trustee, who holds and manages those assets on behalf of beneficiaries. Unlike a will, a trust becomes active during your lifetime and can continue after you die. When you create a revocable living trust, you can serve as your own trustee and maintain full control of your assets while you're alive. If you become incapacitated or pass away, a successor trustee you've named takes over management of the trust's assets and distributes them according to your instructions. Because assets in a trust bypass probate court, they can be distributed to beneficiaries more quickly and privately than assets distributed through a will.

The key differences matter significantly. A will is generally simpler and less expensive to create, but it requires probate, which is a public court process that can take months or even years. A trust involves more complex paperwork and upfront costs but avoids probate, maintains privacy, and provides management of assets if you become unable to manage them yourself. Many people use both documents together—a will to catch any assets not placed in the trust and to address guardianship of minor children, combined with a trust to handle the bulk of their estate outside probate.

Consider this real-world scenario: Sarah creates a revocable living trust and transfers her house, investment accounts, and retirement savings into it. She names her daughter as successor trustee. When Sarah passes away, her daughter can access the trust accounts and transfer the house title without going to probate court. However, Sarah also leaves a will stating that any assets not in the trust should go to her grandchildren and naming her son as guardian for her minor grandchild if needed. The will and trust work together to address all her wishes.

Practical Takeaway: Learn about both wills and trusts by considering your situation: Do you want to avoid probate? Do you have significant assets? Will you need someone to manage assets if you become incapacitated? Your answers will help determine which tools—or combination of tools—may fit your circumstances.

The Role of Power of Attorney: Making Decisions on Your Behalf

A power of attorney (POA) is a legal document that authorizes someone you trust to make decisions and take actions on your behalf. Unlike a will or trust, which address what happens after you die, a power of attorney becomes important while you are still alive—particularly if you become unable to make decisions yourself due to illness, injury, or cognitive decline.

Free Guide to Planning Your Entertainment Budget →

There are two main types of power of attorney. A financial power of attorney authorizes your agent (the person you appoint) to manage your money, pay bills, access bank accounts, sell property, file tax returns, and handle other financial matters. For example, if you have a stroke and are hospitalized, your agent could access your bank account to pay your mortgage and medical bills without needing court approval. A healthcare power of attorney (also called a healthcare proxy or medical power of attorney) authorizes your agent to make medical decisions on your behalf if you cannot communicate your wishes—such as decisions about surgery, medication, life support, or hospice care.

Many people create both types of POA simultaneously. The scope of authority you grant can be broad or narrow. You might authorize your agent to handle all financial and medical matters, or you might limit their authority to specific tasks, such as "only access my checking account" or "only make decisions about pain management." Some people create a "springing" power of attorney, which only becomes active if you become incapacitated. Others create an "immediate" POA that takes effect as soon as you sign it.

The person you choose as your agent bears significant responsibility. They should be someone you trust completely, someone who understands your values and wishes, and someone who is willing and able to take on the role. Many people name a spouse, adult child, or close family member, though you can choose anyone who is willing to serve. Some people name co-agents—two people who must act together—though this can slow decision-making. You can also name successor agents, who take over if your first choice is unable or unwilling to serve.

Without a power of attorney, if you become unable to manage your affairs, your family would need to petition the court to establish a guardianship or conservatorship. This is a more expensive, time-consuming, and public process than simply having a power of attorney in place. Your family would need to prove to a judge that you're unable to manage your affairs, and the judge would appoint someone to manage your decisions—not necessarily the person you would have chosen.

Consider this example: James, age 52, creates both a financial and healthcare power of attorney, naming his wife as his primary agent and his brother as successor agent. Two years later, James is diagnosed with early-stage dementia. His wife is able to use the financial POA to refinance their mortgage, pay medical bills, and adjust their investments without court involvement. When James reaches a point where he cannot make medical decisions, his wife uses the healthcare POA to work with doctors about his treatment plan. Because these documents were in place, his wife can act quickly without expensive court proceedings, and James's wishes are respected.

Practical Takeaway: Think about who you would want making financial and medical decisions if you couldn't make them yourself. Research your state's requirements for creating a power of attorney—most states have specific forms and requirements—and consider creating both financial and healthcare versions. Review your choices periodically, particularly after major life events.

The Probate Process: How Property is Distributed After Death

Probate is the legal process through which a court validates a will, inventories a person's assets, pays any debts and taxes owed by the estate, and distributes remaining property to beneficiaries. It's a formal court procedure that occurs after someone dies, and it's one of the most important concepts to understand in estate planning because it directly affects how quickly and efficiently your property reaches the people you intend to benefit.

Free Guide to Map Drawing Techniques for Beginners →

The probate process begins when someone files the will with the probate court (or surrogate's court, as it's called in some states). If there is no will, the court will distribute assets according to your state's intestacy laws—which may not match your actual wishes. The court appoints an executor (if you named one in your will) or an administrator (if there's no will) to oversee the process. The executor's responsibilities include notifying heirs and beneficiaries, identifying and inventorying all assets, obtaining property appraisals, paying debts and taxes, and eventually distributing the remaining assets to those entitled to receive them.

Probate typically takes several months to a year, though complex estates or disputes can extend the timeline to several years. During this period, the estate's assets are generally frozen—meaning beneficiaries cannot access them. The executor cannot simply hand over money or property; everything must be documented and approved by the court. The process is also public, which means anyone can view the will, the inventory of assets, and details about beneficiaries.

The costs of probate vary by state and the complexity of the estate. Court filing fees, executor compensation, attorney fees, and other administrative costs can range from a few hundred dollars for a simple estate to tens of thousands of dollars for a large estate. In some states, attorney fees are set by state law as a percentage of the estate's value. These costs reduce the amount of money that ultimately goes to your beneficiaries.

Not all property goes through probate. Assets that have a designated beneficiary—such as life insurance proceeds, payable-on-death bank accounts, retirement accounts with named beneficiaries, and property in a transfer-on-death deed—pass directly to the named beneficiary outside of probate. Additionally, property owned in joint ten