Two Ways to Pass On Assets, With Very Different Paths

A will is a legal document that states who should receive a person’s assets at death, but it only takes effect after death and must usually pass through probate, a public court process. A revocable living trust holds assets during the owner’s lifetime and passes them to beneficiaries at death without probate, provided the assets have been transferred into the trust.

The owner of a revocable trust, called the grantor, usually acts as trustee while alive and keeps full control, including the right to change or cancel the trust. If the grantor becomes incapacitated or dies, a successor trustee takes over immediately, without needing a court order.

Neither document saves estate tax on its own, and most estate plans that use a trust also include a will. For the full route from the exam to a career advising on these choices, our complete guide to how to become an investment adviser representative covers every step.

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How a Will Works

A will names the people who will inherit, appoints an executor to manage the estate, and, for parents, names a guardian for minor children. Only a will can appoint a guardian, which is why even people with trusts need one.

When the person dies, the executor files the will with the probate court, which confirms it is valid and gives the executor authority to act. The executor then collects the assets, pays debts and taxes, and distributes what remains under the will’s terms.

A will controls only assets that pass through the estate. Accounts with a named beneficiary, such as IRAs and life insurance, and accounts held as joint tenants with right of survivorship pass outside the will, as explained in our article on what happens to a joint account when one owner dies.

How a Revocable Living Trust Works

A revocable living trust is created by a trust document naming three roles: the grantor who creates it, the trustee who manages it and the beneficiaries who benefit from it. In a typical revocable trust, the grantor fills all three roles during their lifetime and names a successor trustee and final beneficiaries.

The trust only controls assets that are transferred into it, a step called funding. Brokerage accounts, real estate and bank accounts are retitled in the trustee’s name, for example “Jane Smith, Trustee of the Jane Smith Revocable Trust”.

At the grantor’s death, the trust becomes irrevocable and the successor trustee distributes or continues to manage the assets under its terms. The trust entry in the FRC dictionary explains the different types of trust, and the Series 65 Exam Preparation course covers the estate planning tools the exam tests.

Revocable Trust and Will Compared

What Probate Costs and Why Clients Avoid It

Probate costs and timelines vary widely between states. In some states, it is a simple process completed in a few months, while in others it can take a year or more and involve fees set by law as a percentage of the estate’s value.

Worked example: in California, statutory fees for both the executor and the estate’s attorney are 4 percent of the first $100,000, 3 percent of the next $100,000 and 2 percent of the next $800,000. Step one: on a $1,000,000 estate, each fee is $4,000 plus $3,000 plus $16,000, or $23,000. Step two: with both the executor and the attorney charging the statutory fee, the total is $46,000, before court costs.

The fees are based on the gross value of the estate, without subtracting any mortgage, so a home worth $1,000,000 with a $600,000 mortgage still produces the same fee. Assets held in a funded revocable trust are not part of that calculation.

Probate also has costs beyond money. The process is public, so anyone can see what the person owned and who inherited it, and assets can be frozen for months while the court process runs.

Planning for Incapacity

One of the strongest reasons to use a revocable trust is incapacity. If the grantor develops dementia or suffers a serious illness, the successor trustee can step in and manage trust assets immediately, under the terms the grantor chose.

Without a trust, a family may need a court-appointed guardian or conservator to manage the person’s finances, which is slow, expensive and public. A durable power of attorney can also help, but financial institutions sometimes hesitate to accept older or unfamiliar powers of attorney.

For advisers, the trust gives clear authority. The firm knows exactly who can give instructions on the account and can continue managing the portfolio without interruption.

Study Estate Planning With FRC

Estate planning questions test how assets pass at death, who controls them and which tool fits each client’s goals. Our Series 65 course takes you through wills, trusts, account registrations and beneficiary designations together, so you see how each piece interacts.

Consider studying with FRC for every exam on your route. Explore our USA exam courses, from the SIE through the Series 7, Series 63 and Series 65.

To take advantage of the membership, explore FRC Professional Membership, which gives you a verified Digital Profile that shows employers your real-time course progress, together with the Video Resume. Current offers are on our membership deals page.

The Funding Mistake

A revocable trust only avoids probate for assets that have actually been moved into it. Many people sign a trust document and never retitle their accounts, leaving the trust empty.

Worked example: a client signs a revocable trust and moves her home into it, but forgets to retitle her $600,000 brokerage account. At her death, the brokerage account is in her individual name, so it must pass through probate, usually under a pour-over will that directs any assets left outside the trust into it.

The pour-over will ensures the assets end up governed by the trust’s terms, but it does not avoid probate for them. Advisers can prevent this mistake by checking that every investment account is titled in the trust’s name, or carries a transfer on death designation to the trust. A quick annual review of account titles keeps the plan working as the client opens new accounts over time.

Taxes: What a Revocable Trust Does and Does Not Change

During the grantor’s lifetime, a revocable trust is ignored for income tax purposes. Income is reported on the grantor’s own return under their Social Security number, so there is no separate trust tax return and no change in the tax due.

Assets in a revocable trust are included in the grantor’s estate at death, because the grantor kept full control. That means the trust does not reduce estate tax, but it also means the assets receive a stepped-up basis at death, just as they would under a will.

Worked example: shares bought in the trust for $300,000 are worth $900,000 when the grantor dies. The beneficiaries receive a new basis of $900,000 and can sell with no capital gain, as explained in our article on what cost basis is. After death, any income kept inside the trust is taxed under trust tax brackets, which reach the top 37 percent rate at only around $16,000 of retained income.

Other Ways to Avoid Probate

A trust is not the only way to keep assets out of probate. Retirement accounts and life insurance pass directly to the beneficiaries named on the account, brokerage and bank accounts can carry transfer on death or payable on death designations, and jointly held property with right of survivorship passes to the surviving owner.

These tools are simple and inexpensive, and for clients with modest, straightforward estates they may be enough. They do not, however, help with incapacity, and they offer little control over how and when beneficiaries receive the money.

A trust becomes more valuable when beneficiaries are young or need protection, when the client owns real estate in more than one state, which would otherwise require probate in each state, or when the client wants assets managed over time rather than handed over in a lump sum.

Revocable vs Irrevocable Trusts

An irrevocable trust cannot normally be changed or cancelled once it is created, and the grantor gives up control of the assets. In return, assets properly transferred to an irrevocable trust can be removed from the grantor’s estate and, in many cases, protected from creditors.

The trade-off includes basis: assets given to an irrevocable trust that are excluded from the estate generally keep the grantor’s original basis, with no step-up at death. With the federal estate tax exemption at $15 million per person for 2026, most families now value the step-up and control of a revocable trust more than the estate tax savings of an irrevocable one.

Irrevocable trusts still play important roles, such as holding life insurance outside the estate or protecting assets for a beneficiary with special needs. Choosing between them is a legal decision for the client’s attorney, but advisers need to understand the consequences for the investments.

Managing Trust Accounts as an Adviser

When a trust opens an account, the firm will usually ask for a certification of trust, a short document confirming the trust exists, who the trustees are and what powers they have. The trustee, not the beneficiary, is the client who gives instructions.

Trustees have fiduciary duties to the beneficiaries, and in most states they must invest under the prudent investor rule, which looks at the portfolio as a whole and requires reasonable diversification. An adviser managing a trust account should understand the trust’s purpose, its beneficiaries and any distribution requirements.

After the grantor dies, the successor trustee may have to balance the interests of current beneficiaries, who want income, against remainder beneficiaries, who want growth. That conflict shapes the trust’s asset allocation and is a common source of disputes.

The Memory Aid

Remember “will waits, trust works”: a will does nothing until death and then goes through probate, while a funded trust works from the day it is set up, including during incapacity.

For probate, remember “only what’s in it, avoids it”: a trust avoids probate only for assets that have been moved into it.

For taxes, remember “revocable changes nothing”: no income tax change, no estate tax saving and a normal step-up in basis at death.

Exam Traps to Avoid

The first trap is assuming a revocable trust reduces estate tax. The assets remain in the grantor’s estate because the grantor keeps control.

The second trap is assuming a revocable trust protects assets from the grantor’s creditors. It does not, because the grantor can take the assets back at any time.

The third trap is believing a trust can name a guardian for minor children. Only a will can do that. The fourth trap is forgetting that a trust avoids probate only for funded assets; anything left outside the trust may still go through probate.

A Client Scenario

A 68-year-old widow with $1.8 million of investments, a home and two adult children in different states asks whether she needs a trust or whether her will is enough. Her main concerns are avoiding delays for her children and having someone manage her money if her health declines.

The adviser explains that her will would send most assets through probate, which can be slow and public, and would not help if she became incapacitated. A revocable living trust, properly funded, would let her daughter step in as successor trustee in either situation.

The adviser recommends she ask her estate attorney about a revocable trust with a pour-over will, then helps retitle her brokerage accounts into the trust and reviews beneficiary designations on her IRA. The plan reflects her goals and risk tolerance, and the adviser documents it as part of the suitability review.

The Dictionary as a Video Library

The FRC dictionary is a study tool, not just a glossary. Every entry pairs a written explanation with deep-dive video, on-page quizzes and interactive flash cards, so you can read a concept, watch it explained and test yourself in one place.

Rules are covered in the same depth: open a rule and you will find the full explanation alongside video walk-throughs of how it applies in practice. Use the FRC dictionary to open every term in this article as its own explanation, video and quiz, from trusts to fiduciary duties.

Practice Questions to Test Yourself

Question one: A client wants an estate plan that avoids probate and lets a family member manage her assets if she becomes incapacitated. Which tool best meets both goals? A funded revocable living trust with a named successor trustee.

Question two: A grantor of a revocable trust dies. What happens to the trust? It becomes irrevocable, and the successor trustee manages or distributes the assets under its terms.

Question three: Does a revocable living trust reduce the grantor’s estate tax? No, the assets remain in the grantor’s estate because the grantor kept control.

Question four: A parent of two young children has a revocable trust. Does she still need a will? Yes, because only a will can name a guardian for minor children, and a pour-over will catches assets left outside the trust.

Question five: Shares in a revocable trust were bought for $50,000 and are worth $200,000 when the grantor dies. What basis do the beneficiaries receive? $200,000, because the assets are included in the estate and receive a stepped-up basis.

Turn Estate Planning Knowledge Into Career Evidence

Estate planning conversations build long relationships, often spanning generations of the same family. FRC’s Digital Profile shows employers the courses you are actively studying and the progress you have earned through assessed learning, verified by FRC, and a QR code on your resume takes them straight to it.

The FRC Video Resume lets a hiring manager hear you before the interview. Explaining clearly when a client needs a trust as well as a will shows the judgment that wealth management firms value.

Related Questions

Retirement accounts pass by beneficiary designation rather than through a will or trust, so read IRA Rollover vs IRA Transfer to see how inherited IRAs must be moved. Life insurance is another common building block of an estate plan, and our comparison of term vs whole life insurance explains which type suits which goal.

Key Points to Retain

A will takes effect only at death, names an executor and guardians for minor children, and passes assets through probate, which is public and can be slow and costly. A revocable living trust holds assets during the grantor’s lifetime, avoids probate for funded assets, stays private and lets a successor trustee manage the assets if the grantor becomes incapacitated.

A revocable trust changes nothing for income or estate tax and offers no creditor protection, but its assets receive a stepped-up basis at death. Most trust-based plans also include a pour-over will, and the trust works only if accounts and property are actually retitled into it.

For the role the exam leads to, read our guide to what an investment advisor representative is.