Wills and Trusts: In Plain English
Everyone has heard of wills and trusts. Most articles written on wills and trusts often presume that everyone knows the basics of these important documents. In reality, many of us do not. Many of the legal concepts are rooted in complicated, centuries-old law. Not knowing how these documents work causes some people to not do them at all.
If you are not an estate planning attorney, these concepts may be “fuzzy”. 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 moment to define both “will” and “trust”:
Will. A will is a written document that is signed and witnessed. A will is considered a “death” document as it only goes into effect when you die.
- 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
- tends to cost less than a trust on the outset but may cost more to settle after death
Trust. A trust (specifically, a revocable living trust) is a formal relationship where you (a “trustmaker”, “grantor”, or “settlor”) 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 in writing, 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
- 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 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 where a deceased person’s will must be determined to be valid, outstanding legitimate debts paid, and the accounts and property transferred to the beneficiaries.
Probate can take a long time – even years – and is expensive and time consuming. The entire process is public, meaning your nosy 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. Your estate planning process will determine if probate is needed.
- Probate Guaranteed. If you use a will as your primary estate planning tool, and you own property in your individual name, probate is guaranteed unless you have recorded a special deed known as a “Transfer on Death” deed. Even without real property, a probate will be needed if probate estate assets exceed $100,000.
- Probate Avoided. If you use a trust as your primary estate planning tool, the accounts and property are owned by the trust, you may avoid probate – saving your family time, money, and hassle.
The Bottom Line on Wills vs. Trusts
HOW TO DECIDE: As everyone’s situation is different, it is important to consider all aspects of your situation so you can determine what is right for you and your loved ones. For some, probate avoidance, incapacity planning, and trust protections provide more protections than a will. We find that many prefer a trust to avoid probate and hassle.
ACT NOW: Without an estate plan in place, you and your family are left completely unprotected. Call our office at (435) 628-7004 to schedule your free in-person or virtual consultation. We will help you determine whether a will or a trust makes sense for your situation. Wills and trusts are not easy concepts or decisions. Fortunately, you do not have to make these decisions alone. Bangerter Frazier Group has a number of estate planning attorneys who would be pleased to assist.