• Ken Mitchell-Phillips

Wills, Trusts, and All that Stuff

Often my clients ask me whether they should consider a trust or stick with a will. I think it is an important question and although I am biased towards trust, a trust is not a viable option for everyone. So, I thought I’d write a short little article on wills and trusts.


First, I never think of a situation in terms of a will vs. trust. If you have spent your lifetime accumulating assets, it is a good idea to create an estate plan that may or may not include a will or trust. An estate plan is the way you personally decide what will happen to your estate (your accumulated wealth and possessions) when you are no longer around. If you don’t take the initiate and create an estate plan, an impersonal court will decide whom your accumulated wealth and possessions will go to upon your death. Nearly 75% of Americans are without a valid will, trust, or similar formal estate-planning tool. Those Americans leave their decision to a Court to decide what happens to their assets upon their death. However, although there are many different estate-planning tools, I will discuss the most common estate planning options for the average person, which is a will or trust.


Estate Planning in a Nutshell

There are many reasons why it is desirable to have an estate plan, but the primary reasons is to take control of your assets and wealth and ensure that the you are making the decisions regarding your estate rather than someone else. For example, who is going to provide advanced health care plans for emergencies, who is going to decide who is going receive your property upon your death, who is going to distribute your property, and who is going to care for your minor children? These questions and more is reason enough to have a quality estate plan.

The process of creating an estate plan requires you to think about these issues and create a quality plan before someone or something else makes a plan for you. The estate plan includes how your property will be distributed upon your death, a decision as to whether to avoid probate or not, a comprehensive way to avoid taxes, and a coordinated way to address healthcare concerns. Many of these issues can be addressed through a will and/or a trust. However, both tools have their advantages and disadvantages. Below, I discuss estate plans using a will vs. a trust.


Wills

There are specific laws regarding a will that you must follow in order to make sure that your will is valid. That’s why I always recommend a good estate-planning attorney to help with this process. When people cut corners with preparing a will, they often regret it when an actual death occurs because they didn’t hire an attorney to help think through the issues. Most attorneys can prepare a will for less than $1,000.


Once a valid will is created, there is a sequence of events that happen upon your death. First, the executor locates the will and files it with the proper state authority. If necessary, the executor also arranges for the funeral and burial. If the estate is complicated or very large, the executor normally hires a lawyer to handle the probate proceeding. Upon presenting the will to the probate court, the will is proved (meaning that is determined whether r no the document presented I actually the deceased’s will). Once the will is proven and/or considered valid, the executor has the legal authority to gather all of your estate’s property and trustees are officially recognized as the parties who are designated as guardians of any minor children. Now, if the will is determined to be invalid, the Court will appoint an administrator of the estate. The administrator of the estate will gather all assets and distribute them according to state law.


Living Trusts

Although living trusts and wills both operate to pass on your assets and wealth to your beneficiaries, a living trust operates much differently than a will. Most importantly, if you choose a living trust, Court intervention is not required and you can retain much more control over your assets during your life. You can avoid probate, which in turn allows you to avoid challenges to your will. Typically, you transfer your property to a trust prior to your death and therefore upon your death your property is transferred immediately and automatically to your loved ones. As a result, the expense, publicity, and inconvenience of court-supervised distribution of your estate can be avoided


In essence, if a living trust is properly written and funded you can:

 Avoid probate on your assets;

 Plan for the possibility of your own incapacity;

 Control what happens to your property after you are gone;

 Use it for any size estate; and

 Prevent your financial affairs from becoming a matter of public record.


While a trust sounds appealing, there are drawbacks. A living trust is more expensive to set up than a typical will because it must be actively managed after it is created. Most importantly, however, a living trust is useless unless it is funded. A living trust only can control those assets that have been placed into it. If your assets have not been transferred or if you die without funding the trust, the trust will be of no benefit as your estate will still be subject to probate and there may be significant estate tax issues.


Wills vs. Living Trust Considerations

There are many positive reasons to establish a trust but do not overlook the fact that it will involve more upfront effort and expense. To determine if you should make the extra effort and invest in the expense of a trust, answer these questions:

Is informal probate an available option?Most states have an expedited or simplified form of probate for estates under a certain dollar threshold (that dollar value varies by state). If your estate could pass under an expedited form of probate, or if you live in a state where probate is not a complex or burdensome process, a will could be appropriate.


Do you have minor children?A trust allows you to establish provisions specifying when a child will be entitled to any assets held in trust.


Do you have children, grandchildren, or other dependents with special needs?In those instances the access or control those heirs have over their inherited property may need to be limited. With a standard will your property can be passed on to those heirs but a will alone does not allow you to exercise much control over their use of the property.


Will your estate be subject to estate taxes?If the value of your estate exceeds the current estate tax threshold, you may wish to consider setting up a trust with tax planning provisions. The estate tax threshold frequently changes, so be sure to check with the IRS to determine whether or not estate tax is a concern for you.


Will you actively manage your estate plan? If not, a living trust may not be a suitable solution. Again, a trust will only be beneficial if assets are transferred into it.


So what is best for you? In many respects, a living trust and a will accomplish similar objectives. A trust, however, allows you to realize other objectives that a will cannot. But those advantages don't come without a price. Whether or not a living trust is better for you than a will depends on whether the additional advantages are worth the cost. When choosing, remember that one size does not fit all. What is right for one person may not be right for everyone. Your estate plan should be prepared in a way that best meets the needs of you and your family. Also, a poorly drafted will or trust may not accomplish your intended results so consulting a competent estate planning attorney can help you accomplish your ultimate objectives.



Disclaimer: The following resource and all information contained in this article is for informational purposes only and do not constitute legal advice. This information is not intended to create an attorney-client relationship, and the receipt or viewing of it does not create or constitute an attorney-client relationship. You should not act upon any information contained in this article without consulting an attorney for individual advice regarding your own situation.

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