Many people think wills and trusts are the same. However, there are some key differences between these two estate planning tools. Let’s look at the differences between wills and trusts, and explore why a trust might be a better option than only a will. We’ll go beyond wills and trusts for dummies and explore key differences between these two estate planning tools.
What a Legal Will Can Do
Confused about the differences between a will and a trust? If so, you are not alone. While it is always wise to contact expert advice from an estate planning attorney, it is also essential to understand the basics.
A will is a written legal document that allows you to control how your possessions and assets are distributed after you die. However, a trust does the same thing without court interference.
Name a Guardian for Minor Children
State laws allow you to name a guardian for minor children. A probate judge considers your final wishes, but they make the final decision about guardianship.
However, with a trust in addition to your will, your case never comes before a court. Instead, your wishes in your last will and testament are fully honored by your trustee.
Name an Executor
A will lets you specify an executor or personal representative to take responsibility for wrapping up your affairs after you die. They work with the probate court, gathering and protecting your accounts and property not owned by a trust, paying your debts, and giving what remains to your named beneficiaries.
However, with fully funded revocable living trusts, an executor is not necessary.
Avoid Intestate Succession
With your probated will, your assets pass to your family based on your wishes. Without a will or a trust, the state may dramatically alter what you would have wanted to happen for the next generation.
Estate Planning Essentials
When considering your future personal and financial needs, it’s essential to make a complete estate plan that includes important considerations such as:
- Durable general power of attorney: Name someone with broad decision-making powers for you. With this POA, your agent may act now, when needed, and also later, if you become incapacitated. Naming a durable general power of attorney is one of the greatest gifts for yourself and can help prevent a court from naming a guardian for you.
- Durable power of attorney: Name someone as your durable power of attorney who can make certain limited decisions for you now, and also later, if you become incapacitated.
- Living Will: Spell out your wishes about healthcare should you become unable to communicate.
- Name a Trustee: Name someone you trust to administer trust assets and handle trust administration.
- Transfer Any Real Estate: You may decide jointly titling real estate makes sense, but be careful for your heir’s sake! The value of the property will not step up in basis, and they may owe thousands in capital gains taxes if they try to sell later on. Instead, consider placing real estate property in a trust.
- Naming a Healthcare Proxy: Choose a healthcare advocate to make medical care decisions for you if you are unable. This person will be key in deciding what will happen medically while you are living. Your family’s interests are best served when you lay out your wishes.
- Name Beneficiaries: Both a will and trust allow you to name who you want to receive your accounts and property.
Wills vs. Trusts
A will describes your accounts and property and states who gets what. Only accounts and property in your individual name are controlled by a will.
BEWARE: If an account or piece of property has a beneficiary, pay-on-death, or transfer-on-death designation, this designation will trump the person listed in your will.
While a trust acts similarly to a will, you must “transfer” property into a trust – commonly called “funding.” This is accomplished by changing the ownership of your accounts and property from your individual name to the trust’s name. Only accounts and property in your trust’s name are controlled by the trust’s instructions.
However, don’t worry about items left out of your trust. Your estate planning attorney can help you draw up a pour-over will. This type of will automatically pours over into the trust any remaining assets that you did not place in trust before your death.
A trust is similar to a will in that it allows you to assign ownership of your assets upon death. However, with a trust, the assets are managed by trustees instead of going straight to the beneficiaries. In addition, a trust can also allow for asset protection during life as well as after death.
Trusts offer more flexibility than wills because they can be used to manage both present and future assets. And both wills and trusts allow revisions whenever your intentions or circumstances change (so long as you have the mental ability to understand the changes you are making).
Advantages of Trusts Over Wills
There is much that a trust can do – that a will can’t ever do!
A trust allows you to name a trustee. Your trustee may handle everything and more than an executor may handle. In addition, they do not answer to a court and can expedite the settling of your estate without court involvement. This can mean that your beneficiaries receive their inheritances much sooner.
An executor may not sell property or make other significant decisions without the probate court’s guidance. However, a trustee also has the flexibility to sell property or make crucial decisions about how best to help heirs without interminable wait times for a court to listen and decide.
Provide Asset Protection
Your estate planning attorney can craft a trust to include protections that allow your beneficiaries to receive enjoyment and benefit from the accounts and property in the trust while keeping the assets from seizure by creditors, such as:
- Divorcing spouses
- Car accident litigants
- Bankruptcy trustees
- Business failures or litigation
Avoid Conservatorship and Guardianship
A will only becomes effective when you die. In other words, a will is useless in avoiding conservatorship and guardianship proceedings during your life.
However, a trust allows you to name your spouse, partner, child, or another trusted person to manage your money and property should you become unable to manage your own affairs.
Bypass Probate Court
Accounts and property in a revocable living trust do not go through probate to be delivered to their intended recipient. Accounts and property that pass using a will guarantee probate.
The probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time-consuming – sometimes taking years to resolve.
With a trust, there is no need for your family to navigate probate. Additionally, trusts allow you to reduce or eliminate estate taxes, which can result in significant savings for your beneficiaries.
A will is a public document; a trust is not. Anyone, including nosey neighbors, predators, and the unscrupulous, can discover what you owned and the identity of your heirs.
A trust allows you to maintain your loved ones’ privacy after death.
Trusts offer greater privacy than wills because the terms of a trust are not made public when it is created. This means that the contents of your trust remain private and will not be revealed upon your death.
There is no court involvement where others can see what is happening with your estate. Your trustee manages all of the settling of the estate and distribution of assets to your heirs.
Protect You From Court Challenges
Trusts also provide better asset protection than wills because they are not subject to probate court proceedings and are more difficult to challenge.
Although court challenges to wills and trusts occur, attacking a trust is generally much harder than attacking a will because trust provisions are not made public.
Wills do not allow for contingencies in the way that trusts do.
With a trust, you can limit when and how certain funds are used or released, as well as place restrictions on what the funds can be used for. This can be particularly helpful in complex estate planning scenarios where multiple individuals are involved.
Beyond Wills and Trusts for Dummies
Trusts are legal arrangements that protect assets and direct their use and disposition in accordance with their owners’ intentions.
While wills take effect upon death, trusts may be used both during the life and after the death of their creators. Separately or together, wills and trusts can serve as effective estate planning strategies.
With a pour-over will, an estate planning attorney can help any assets not already in trust immediately pour into your trust at death.
Why Not Just Buy a Trusts Kit for Dummies?
When you buy a wills and trusts kit online, you lose out on the invaluable advice of qualified professionals with legal education.
Online content is notoriously outdated. While a site may offer practical worksheets, forms, and templates, they may not give you the straightforward guidance you need. State laws often create new loopholes and statutes that can bring unexpected tax liabilities.
Without the professional help of an attorney-in-fact, you can’t be sure what will happen to your estate. To avoid estate planning mistakes, choose qualified professionals who stay up to date with their continuing legal education.
A qualified attorney can bring indispensable advice about your unique personal finance issues, what to do about a prior marriage, and help you avoid common estate planning pitfalls.
The estate planning process is not simple and can dramatically differ for each person or family, depending on your goals and needs.
In addition, an attorney who has been through developed professional education programs will understand the different types of trusts you can benefit from. These may include:
- Medicaid Trusts
- Charitable Trusts
- Asset protection trusts
- Credit shelter trusts
- Education trusts
- Special needs trusts
- Trusts for minor children
- Other Trusts
The Bottom Line Regarding Wills and Trusts
Both wills and trusts have their pros and cons; however, creating a trust in addition to a will may be the best option for those who want:
- More control over their assets
- Greater asset protection and privacy
- Ability to reduce or eliminate estate taxes
- Contingencies that specify when and how much an heir can inherit
It’s essential to consult with an experienced estate planning attorney to determine which legal tools best fit your needs and can take you and your family into a bright future.
Why Work With an Estate Planning Attorney Practicing Law?
While some differences between a will and trust are subtle, others are not. At Vail Gardner Law, we take a look at your goals as well as your financial and family situation to design an estate plan personalized to your needs.
We’ll help you understand wills and trusts and make sure your wishes are carried out. Whether you need a simple will or a more complex trust-based plan, we can provide the legal advice you need.
Schedule your in-person or virtual consultation today to get started!