16 Jul Wills vs. Trusts: In Plain English
Everyone has heard of wills and trusts. Most articles written on these topics, however, often presume that everyone knows the basics of these important documents. But, in reality, many of us do not – and with good reason – as they are rooted in complicated, centuries-old law.
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.
Wills vs. Trusts: Defined
Let us take a minute and define both “will” and “trust”:
A will is a written document signed and witnessed. A will is considered a “death” document as it only goes into effect when you die.
A trust (specifically, a revocable living trust) is a formal relationship where you (the trustmaker) name a trusted individual (trustee) to manage accounts and property for your benefit and the benefit of others(beneficiaries). When people talk about a “trust” they are usually referring to the legal document that puts this relationship inwriting, and is effective during your lifetime, during any period of disability, and after death. Because the trust is effective during your lifetime and you can change it, it is referred to as a “living” document.
- 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)
- 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
- Provides for the division and gifting of your accounts and property
- 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
One key element in deciding between a will and a trust is understanding the probate process. The term “probate” –which literally means “proving” – refers to the process wherein a deceased person’s will must be determined to be valid, outstanding legitimate debts paid, and the accounts and property transferred to the beneficiaries.
The downside is that probate can take a long time – even years – it is expensive and time consuming, and the entire process is completely public, meaning your nosey neighbor Nancy and evil predator Paul 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.
What do I do with this information?
Now that you know the various terms, it is important to have a plan for yourself and use the terms in the right legal context to ensure that your plans and wishes are honored. Many do-it-yourself estate and trust documents do not accurately define and distinguish the different groups, and if you are not aware of the distinctions, you may believe that you are protecting someone when you are not.
The Bottom Line on Wills vs. Trusts
ACT NOW: Without an estate plan in place, you and your family are left completely unprotected. Call our office now to schedule your in-person or virtual meeting. We will help you determine whether a will or a trust makes sense for your situation. You do not have to make these decisions alone.
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.