What does a Will do, what does a Trust do, and do you need both? Most people are unaware of the important distinctions. Here we clear up the confusion. Learn the difference between Wills versus Trusts and why they’re both important.
Many estate planning clients start off our conversation by saying “I already have a Will, so I think I might be taken care of.” What they mean is that they have an older Will that was drafted and signed years back. Or, in some cases, they have drafted their own Will which may not be effective if not done correctly. They believe that by simply having a Will, they have avoided the need to involve the courts in their estate after their death. That’s a common myth. If you have to use your Will after you die, you are going through the Court process. If one of your goals is to avoid the need for court intervention in your estate, you should avoid ever having to use the Will. You need to add a Trust in your estate planning.
What is a Will and What Does It Do?
The Last Will and Testament, commonly referred to simply as a Will, is the document most people associate with estate planning. A Will, however, is the document that accomplishes the fewest of many individuals’ objectives.
After you die, if any of your assets need to go through any Court directed re-titling process, the Will is the document that directs the Court how to behave. This Court directed re-titling process is called probate. If you pass away with any assets in your name individually when you die, the assets remain in a state of limbo as they have no living owner. The probate process allows a Court to nominate someone to take control of these assets and re-title them in the name of your beneficiaries. That person is called your executor or personal representative. The Will is the document that directs the Court who to nominate as your executor, and who the executor needs to give the assets to.
Probate can be a very time consuming and costly process. It generally takes somewhere between 8-12 months to administer a probate estate. During that time your beneficiaries aren’t enjoying the legacy you left to them. It can, in fact, take much longer than that. Probate costs can eat up somewhere between 5-10% of the balance of your estate. This is all money that could have gone to your beneficiaries with better planning. Also, probate is a Court procedure. All of the assets that go through probate become public knowledge as well as the disposition of those assets. This allows anyone to see what assets were in your estate, and who they were left to.
By simply having a Will, you have not avoided probate. You have only given directions to the Court as to how to act during probate. Wills can have some additional benefits beyond directing the Court how to re-title your assets. One example is nominating guardians for minor and disabled children as well as making administration easier on your executor. You should always have a Will, but it may make sense to consider additional estate planning documents.
What is a Trust and What Does It Do?
A Living Trust, sometimes referred to simply as a Trust, is a document that can help you avoid the need for probate. It provides many additional benefits. The Trust gives you the ability to re-title assets into the name of the Trust. That legally removes those assets from your name individually. The Trust then states how those assets are administered during your life, who is in charge of those assets, and where they go after you die. This avoids the need for those assets to go through probate after your death. This allows your beneficiaries to receive the property they are entitled to much more quickly, and it’s more cost effective than probate. This also keeps the distribution of your estate confidential.
A Trust provides additional benefits to minor and disabled beneficiaries. If a minor becomes entitled to receive property, the Trust can state that the property can be used for the minor’s benefit, but is not to be distributed to them until they reach a certain age (such as 25 or 30 years old.) It can also state that if someone is disabled and is receiving government benefits, that the property is to remain in the Trust to be used to supplement those government benefits. It can stipulate that funds not be distributed to them outright so as to jeopardize those benefits.
Trusts can also provide asset protection, tax planning, long term care planning, and many other benefits depending on the type of trust used.
Should I have a Will, a Trust, or Both?
The answer to this question depends on your goals, but many times the answer is “both.” A Trust can accomplish probate avoidance objectives, provide protection to minor and disabled beneficiaries, and accomplish asset protection goals and many other objectives. A Will can provide a failsafe. If any assets that should have been in your Trust during your life end up going through probate, the Will can direct the Court to re-title the assets into the Trust, thus maintaining all the protections the Trust was put in place to deliver.
Planning Ahead is Critical
In order to be effective, Wills and Living Trusts must be put into place correctly during your lifetime and prior to any disability. Waiting until it is too late can have disastrous consequences. As with other aspects of your estate plan, with proper planning, you can ensure a good quality of life for you and your family.
Written by Brian G. Quinn, Attorney with Quinn Estate & Elder Law