Selecting a Trust-Based Plan vs a Will-Based Plan

Selecting a Trust-Based Plan vs Will-Based Plan

Deciding between a will-based plan and a trust-based plan depends on your specific needs and goals. Many people assume they need to have a trust to avoid probate, but that’s not always the case or the best reason to pick the type of plan you should have. Let’s break it down.

Avoiding Probate Without a Trust

A common misconception is that a trust is the only way to avoid probate. In reality, beneficiary designations are the most powerful tool for bypassing probate. Nearly all financial accounts and life insurance policies allow for payable-on-death (POD) or transfer-on-death (TOD) designations, which ensure assets go directly to beneficiaries without court involvement.

For real estate in Minnesota, a Transfer on Death Deed (TODD) works similarly, allowing property to pass outside of probate. Additionally, Minnesota law exempts estates valued under $75,000 from probate, meaning that with proper beneficiary designations and TODDs, a well-structured will-based plan can efficiently transfer assets while avoiding probate altogether.

These tools make a will-based plan a good default recommendation for individuals who are getting an estate plan put together for the first time.

When a Trust Makes Sense

A trust can be valuable in specific situations, such as:

• Owning real estate in multiple states – A trust can prevent the need for multiple probate proceedings.

• More than two beneficiaries inheriting real estate – Avoids complications with shared ownership.

• Many individual beneficiaries for financial accounts – Simplifies distribution logistics.

• Age-based or restricted distributions – A trust allows you to control when and how beneficiaries receive assets.

• Tax planning for larger estates – If your estate exceeds $3 million, a trust may help with tax efficiency.

• You simply want one – Some people prefer the control and flexibility of a trust-based plan.

Trusts Don’t Automatically Avoid Probate

A common mistake is assuming that just having a trust avoids probate. It doesn’t. Assets must be properly titled in the trust’s name; otherwise, they may still go through probate. Like beneficiary designations, a trust only works if it’s correctly set up and funded.

Bottom Line: Start With a Will, Add a Trust If Needed

For many people, a well-structured will-based plan—with strategic use of beneficiary designations and TODDs—is the most cost-effective and efficient estate plan. Trusts are valuable in the right circumstances but aren’t always necessary. Your estate plan should be tailored to your specific needs, not based on misconceptions.