With over 600,000 people dead from CoVID related issues, having an estate plan is more important than ever. While most people have heard of wills and trusts, very few really understand the difference. And, very few understand the importance of having them. It’s assumed that everyone knows the basics of wills and trusts. But, in reality, many folks do not. One, because any discussion of estate planning can be complicated, especially when taxes are added to the conversation. Then, overall, we’d rather not talk about death, dying, and incapacity.
If you are not an estate planning attorney, these concepts tend to remain merely that – concepts. So, if you are “fuzzy” about wills and trusts, know that you are not alone. After we show you the difference between these two documents, we will tell you why a trust is the better choice–in some cases.
Wills vs. Trusts: Defined
Let us take a minute and define both “will” and “trust”:
Will. A will is a written document that is signed and witnessed. Some states require two disinterested witness and others require three. A will is considered a “death” document. We call them testamentary documents, because they go into effect when you die.
- provides for the division and gifting of your accounts and property at death, but not accounts and property directed to others through beneficiary designations (e.g. life insurance or retirement benefits)
- is a public document
- sends accounts and property that do not have designations and that are owned solely by you, in your individual name, through the probate process
- allows you to appoint permanent guardians for your minor child
- names the person you wish to wind up your affairs (e.g. executor or personal representative)
- permits you to cancel or change your decisions during your lifetime
- does not always include protective trusts for your beneficiaries and tax planning because many wills are simple 2-3 page documents
- tends to cost less than a trust on the outset but may cost more to settle during court proceedings after death. That process is called probate and can be very expensive.
Trust. A trust (specifically, a revocable living trust) is a formal relationship, a contract, between the person creating the trust and the trustee. The person creating the trust is sometimes called the settlor, trustor, or trustmaker. The settlor names a trusted party to manage her affairs and property, in the event she becomes incapacitated or dies. The trustee could be an individual, several individuals, or a corporate fiduciary. When people talk about a “trust” they are usually referring to the legal document that puts this relationship in writing, and is effective during your lifetime, during any period of disability, and after death. The revocable living trust can be amended at anytime by the settlor during her lifetime, so long as she is competent.
- provides for the division and gifting of your accounts and property
- is a private document
- avoids involvement of the probate court if the trust is fully funded (meaning the ownership of the accounts and property has been changed from you as an individual to the your trust)
- provides for a back-up trustee upon your death or if you are no longer able to handle your own affairs
- allows for the continuous management of your accounts and property – even if you are still alive but unable to do so yourself
- often includes protective trusts for your beneficiaries and tax planning
- permits you to cancel or change your wishes during your lifetime
- costs more than a simple will on the outset but may cost much less upon administration, while typically providing significantly more value
The Probate Process: A Key Element in Deciding Between a Will and Trust
The number one consideration is the probate statute in your state. Another consideration is the ease in which one can get though probate. In some states, the probate process is relatively” easy.In other states, if you own property, having a trust is the best bet. Understanding the probate process is essential. The term “probate” literally means “proving.” It refers to the process that a deceased person’s will must go through to be deemed valid. Additionally, it ensures outstanding legitimate debts are paid, and assets are transferred to the beneficiaries.
The downside is that probate can take a long time. In some cases, it takes years. Probate is also expensive and time consuming. The process is public, therefore your nosy neighbor and evil predator both know exactly who got what and how to contact the recipients. In virtually all cases, the only upside of probate is that once the probate has been officially closed, creditor claims are permanently cut off.
- Probate Guaranteed. If you use a will as your primary estate planning tool, and you own property in your individual name, probate is guaranteed.
- Probate Avoided. If you use a trust as your primary estate planning tool, the accounts and property are owned by the trust, not you, avoiding probate – saving your family time and money.
The Bottom Line on Wills vs. Trusts
HOW TO DECIDE: As everyone’s situation is different, it is important to analyze every aspect of your situation – and what the future may hold – so that you can determine what is right for you and your loved ones and whether probate avoidance, incapacity planning, and trust protections have value to you and those you love. We have found that most people receive the greatest overall benefit from having a trust.
ACT NOW: Without an estate plan in place, you and your family are left completely unprotected. Call me, Francine D. Ward, now to schedule your in-person or virtual meeting. I will help you determine whether a will or a trust makes sense for your situation. You do not have to make these decisions alone.
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