Wills and trusts are two of the most commonly used Wills and Trusts planning tools. As such, they form the foundation of most Wills and Trusts. While both documents are legal tools designed to distribute your assets to your loved ones upon your death, the way in which they work is quite different.
From when they take effect to how they are administered, wills and trusts have some key differences that you need to consider when creating your Will and Trust. However, when comparing the two documents, you won’t necessarily be choosing between one or the other—most plans include both.
In fact, a will is a foundational part of nearly every Will and Trust. Yet, you may want to combine your will with a living trust to avoid the issues inherent in plans that rely solely on a will. As you’ll learn below, the biggest of these issues is the fact that if your Will and Trust only consists of a will, you are guaranteeing your family has to go to court if you become incapacitated or when you die.
To determine the right solution for your situation, you should meet with us, your Personal Family Lawyer® for a Family Wealth Planning Session™. We offer an across-the-board process for helping you feel confident that you’ve chosen the right planning tools for yourself and the people you love.
In the meantime, here are some of the key differences between wills and trusts that you should be mindful of.
When They Take Effect
A will only will go into effect when you die, while a trust takes effect as soon as it’s signed and your assets are transferred into the name of the trust. Further, a will directs who will receive your assets upon your death, while a trust specifies how your assets will be distributed before your death, at your death, or at a specified time after death. This immediate statement of how assets are to be distributed is how trust keep your family out of court in the event of your incapacity or death.
Furthermore, because a will only goes into effect when you die, it offers no protection if you are no longer able to make decisions about your financial, legal, and healthcare needs. If you do become incapacitated, your family will have to petition the court to appoint a conservator or guardian to handle your affairs. The process for this appointment can be costly, time-consuming, and stressful.
There’s always the possibility that the court could appoint a family member as a guardian that you’d never want making such critical decisions on your behalf. Conversely, the court might select a professional guardian, putting a total stranger in control of just about every aspect of your life and leaving you open to potential fraud and abuse by crooked guardians.
With a trust, however, you can include provisions that appoint someone of your choosing to handle your assets if you’re unable to do so. When combined with a well-drafted medical power of attorney and living will, a trust can keep your family out of court and out of conflict in the event of your incapacity, while ensuring your wishes are carried out exactly as you intended.
The Assets They Cover
A will covers any asset owned solely in your name. A will does not cover property co-owned by you with others, nor does your will cover assets that pass directly to your loved ones via a beneficiary designation, such as life insurance, IRAs and 401(k)s
Trusts, on the other hand, cover any asset that has been transferred to the trust or where the trust is the named beneficiary of an account or policy. That said, if an asset hasn’t been properly transfered to the trust, it won’t be covered. Therefore, it’s critical to work with your Personal Family Lawyer® to ensure your trust works as intended.
Most lawyers will set up a trust for you, but few will ensure your assets are properly inventoried or transferred, and we believe this is the single most important aspect of Wills and Trusts planning. As your Personal Family Lawyer®, we will not only make sure your assets are properly inventoried and titled when you initially set up your trust, we’ll also ensure that any new assets you acquire over the course of your life are inventoried and properly funded to your trust on an ongoing basis through our various maintenance plans to ensure your plan works when your family needs it. This keeps your assets from being lost and prevents your family from being inadvertently forced into court and conflict because your plan was never fully completed.
Finally, even with the support of a lawyer like us, it can sometimes be difficult to transfer every single one of your assets into a trust prior to your death. Given this, you should consider combining your trust with what’s known as a “pour-over” will. With a pour-over will in place, all assets not held by the trust upon your death are transferred into your trust through the probate process.
How They Are Administered
In order for assets to be transferred to a beneficiary through a will, the will must pass through the court process known as probate. During probate, the court oversees the will’s administration, ensuring your assets are distributed according to your wishes, and automatically supervision to handle any disputes.
However, probate proceedings can drag on for months or even years, and your family will likely have to hire an attorney to represent them, which can be costly and drain your estate. During probate, there’s also the chance that one of your family members might contest your will.
Bottom line: If your Will and Trust consists of a will alone, you are guaranteeing your family will have to go to court.
Furthermore, since probate is a public proceeding, your will becomes part of the public record. This means everyone will be able to learn the contents of your estate, who your beneficiaries are, and what they inherit, setting them up as potential targets for scam artists.
Unlike wills, trusts don’t require your family to go through probate. Plus, when you have a trust set up, the distribution of your assets happens in the privacy of our office so the contents and terms of your trust will remain completely private.
How Much They Cost
Wills and trusts do differ in cost. The average will-based plan can run between $500 to $2,000, depending on the options selected. An average trust-based plan can be set up for $3,000 to $5,000, depending on the options chosen. So, on the front end, wills are less expensive than trusts.
However, wills must go through probate, where attorney fees and court costs can be quite pricey. So even though a trust may cost more upfront to create, once the total costs of probate is factored in can actually make a trust the less expensive option in the long run.
That said, each family’s situations are different. This is why as your Personal Family Lawyer® we do not create any documents until we know what you actually need, and what will be the most affordable solution for you and your family based on your family dynamics, your assets, and your desires.
With this in mind, our Family Wealth Planning Session Process™ is designed to compare the costs of will-based planning and trust-based planning with you. This way you will know exactly what you want and why, as well as the total costs and benefits over the long term.
Find The Option That’s Right For Your Family
The best way for you to determine whether or not your Will and Trust should include a will, a living trust, or a combination of the two is to meet with us as your Personal Family Lawyer® for a Family Wealth Planning Session™. During this process, we’ll go through an analysis of your assets, what’s most important to you, and what will happen to your loved ones when you become incapacitated or die.
Sitting down with us, your Personal Family Lawyer®, will empower you to feel confident that you have the right combination of Wills and Trusts planning solutions to fit with your unique asset profile, family dynamics, and budget. Schedule your appointment today to get started.
This article is a service of Levi L. Alexander, Personal Family Lawyer®. We do not just draft documents. We help to ensure you make informed and empowered decisions about life and death, for yourself and the people you love. This is why we offer a Family Wealth Planning Session™. During this session, you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session for free.