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Estate planning is a crucial step in preserving wealth and ensuring a smooth transition of assets to future generations. For high-net-worth individuals (HNWIs), selecting the right estate planning tools—wills and trusts—can make a significant difference in terms of privacy, tax efficiency, and asset protection.
This guide will break down the differences between wills and trusts, their benefits, and how they fit into a comprehensive estate planning strategy.
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What is a Will?
A will is a legal document that outlines how your assets will be distributed upon your death. It allows you to:
- Name beneficiaries for your assets
- Appoint guardians for minor children
- Designate an executor to oversee estate administration
However, a key drawback of wills is that they must go through probate—a court-supervised process that validates the will and oversees the distribution of assets.
Key Considerations for Wills
Wills are relatively easy and inexpensive to draft. They allow for the appointment of guardians for minor children and provide clear instructions for asset distribution. However, wills must go through probate, which can be a time-consuming and expensive process. The probate process also makes the details of an estate public, potentially compromising privacy. Additionally, wills only take effect after death and do not provide any protections for managing assets if the individual becomes incapacitated.
For more details on how wills work, visit RBC Wealth Management’s guide.
What is a Trust?
A trust is a fiduciary arrangement that allows a third party (the trustee) to hold and manage assets on behalf of beneficiaries. Trusts can be established during your lifetime (living trusts) or upon your death (testamentary trusts).
Benefits of Using a Trust
One of the main advantages of a trust is that assets placed within it typically bypass probate, ensuring a faster and more private transfer of wealth. Trusts can also provide instructions for managing assets in case of incapacity, something a will does not address.
Certain types of trusts, such as irrevocable trusts, can help minimize estate taxes and protect assets from creditors. Additionally, trusts allow for greater control over how and when assets are distributed, which is particularly useful when planning for minor children or beneficiaries who may need financial oversight.
Key Differences Between Trusts and Wills
For high-net-worth individuals, selecting the right estate planning tool depends on privacy, control, and tax considerations.
| Factor | Will | Trust |
| Probate Process | Required | Avoided |
| Privacy | Public record | Private |
| Incapacity Planning | No | Yes |
| Estate Taxes | No tax benefits | Can reduce estate taxes |
| Asset Protection | Limited | Stronger protections available |
While a will is essential for appointing guardians and outlining general asset distribution, a trust offers greater flexibility, privacy, and control over your estate.
For an overview of the role of trusts in estate planning, check out Merrill Lynch’s guide.
When Should You Use a Trust Instead of a Will?
Trusts are particularly beneficial for HNWIs due to their ability to safeguard and efficiently transfer wealth. Here are key situations where a trust may be preferable:
Avoiding Probate
Since trusts do not go through probate, they allow for a faster and private transfer of assets to beneficiaries. This is especially important for complex estates or those with assets in multiple states.
Protecting Assets from Lawsuits & Creditors
Asset protection trusts (such as irrevocable trusts) can shield wealth from lawsuits, creditors, and divorce settlements. Read more about how trusts protect generational wealth in this article from Baritz Law.
Reducing Estate Taxes
For high-net-worth individuals, estate taxes can take a significant portion of an estate. Trusts, such as grantor retained annuity trusts (GRATs) or charitable remainder trusts (CRTs), can help minimize estate taxes and maximize wealth transfer.
Business Succession Planning
If you own a business, a trust can facilitate the smooth transfer of ownership while avoiding probate complications snd stays tax-efficient year over year.
How to Choose the Right Estate Planning Strategy
For most individuals, a combination of wills and trusts is the best approach. Consider:
- Using a will for general asset distribution and guardian appointments.
- Setting up a revocable trust for privacy, probate avoidance, and incapacity planning.
- Exploring irrevocable trusts for estate tax reduction and asset protection.
Estate planning isn’t just about passing on assets—it’s about ensuring your legacy is protected and your family’s future is secure. A well-crafted plan can help minimize estate taxes, protect assets from creditors, and ensure your wishes are carried out.
To dive deeper into advanced estate planning techniques, read our full guide: Essential Estate Planning for Your Family’s Future.
Final Thoughts on Trusts vs. Wills
Both wills and trusts play vital roles in estate planning, but for HNWIs, trusts often provide the most strategic advantages in terms of privacy, tax efficiency, and wealth preservation.
By working with an experienced estate planning attorney and tax advisor, you can build a customized plan that aligns with your financial goals and helps support a smooth transition of assets to future generations.
