If you are considering your estate planning options and find yourself confused by all of the debate about wills and trusts, you’re not alone. There is nothing easy about planning for your own death, and that process is made even more difficult when you have to struggle to find clear, unbiased information about the options available to you. By now, you probably understand that you will need to use at least one of these two options to ensure a smooth transfer of your assets when you die. The question is: which one is right for you? Once you have all the facts at your disposal, the verdict will be clear.
Two Means to the Same End… With Differences
At their core, both of these things are designed with the same end in mind: ensuring that your assets are dispensed with in accordance with your wishes after you die. They are both very effective means for accomplishing that goal, but only when you have chosen the right option for your needs -and only when the documents themselves are properly crafted. There are, however, a number of critical differences that enable each to accomplish things that the other cannot.
A look at Wills
The Last Will and Testament is, without a doubt, the most well-known end-of-life planning tool in existence. At the same time, it is not as well-understood as some might assume. For example, there are many people who mistakenly believe that having a will helps you to avoid probate. That is simply not true. A properly executed will can help to make the probate process easier than it might otherwise be, but it does not enable your estate to evade that process altogether.
A will does not become official when you create it; instead, it goes into full force only after you are dead, and after a probate court has confirmed its validity. Only then is your executor given authority to take charge of the estate, as he and the court undergo the sometimes lengthy process involved in sorting out your estate affairs, dealing with creditors or others with a claim to the estate, and transferring ownership of assets in accordance with your wishes.
With a will, all of your assets must go through probate – unless you have taken steps to secure automatic asset ownership transfers through non-probate mechanisms. For example, joint tenancy accounts, transfer-on-death accounts, and similar options can enable assets to avoid probate. Those assets instead transfer to the beneficiaries in accordance with the terms of the accounts, rather than relying on the will or probate.
Though trusts have been around for quite some time, many people remain unfamiliar with them. They are more complicated documents, and every detail has to be set out in clear language to ensure that there is no ambiguity. That tends to make the documents longer than most wills need to be. At its core, a trust is a contract you create between yourself and your named trustee – a contract in which that designated agent agrees to manage the assets in the trust for the benefit of your named beneficiaries.
In most instances, the living trust is the preferred option. This ensures that the grantor retains control over the assets in the trust while he or she is alive. The trustee takes control when you die. There are many benefits to this option, especially when a revocable trust is utilized. That choice enables you to revoke the trust at any time, should your circumstances or needs change while you are still alive. Regardless of which kind of trust you choose, however, one thing cannot be avoided: you have to fund it.
While trusts enable assets to avoid probate, that is only true for property that is legally transferred to the trust. Any assets that you fail to transfer to the trust will remain your legal property, and thus subject to probate when you pass away. The key is to ensure that you make the trust the legal title-holder of all assets that you want to be managed in accordance with the trust’s provisions. When you die, those assets are distributed by the trustee in whatever manner you set forth in the trust document.
Comparing the Two
Wills and trusts both have their advantages and disadvantages. Wills can be powerful instruments for expressing your non-financial wishes – such as how you would like your children to be raised, where your pets should live, and so on. They are also less expensive to create, but generally costlier in the long run, since the probate process can sap as much as 4-6% of the value of your estate. A living trust ends up costing more during the set-up process, but costs less overall and ensures that your heirs are not left coping with the challenges the probate process can present.
Wills are also public affairs once they go to probate, while trusts remain private to all but the parties involved. On the other hand, wills are often a better option for small estates, or when many of the decedent’s last wishes involve matters unrelated to assets. Trusts are generally better for more detailed management of issues related to finances, taxes, and ongoing distribution of assets over time.
Of course, reaching a verdict for your own personal estate planning can still be difficult, and it may be that you actually need both documents – as well as powers of attorney and other strategic documents – to properly secure your estate and provide for your end-of-life planning needs. Ultimately, each person’s needs are different, and dependent on a variety of unique individual circumstances. As a result, this is a decision that is best made in consultation with an experienced estate planning attorney.
At Frank & Kraft Attorneys at Law, our experienced team can get you the help you need when it comes time to select the right estate planning strategy for your unique circumstances. We’ll work with you to make certain that the estate plan you choose best secures your interests. To find out more about how we can help you with your will and living trust needs, contact us via our website or call us at (317) 684-1100 today.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.