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When it comes to legacy planning, wills and trusts are two of the most commonly used legacy planning tools, and are usually the foundation of most estate plans. While both are legal documents designed to distribute your assets to those you love upon your death, each one serves it’s own purpose.
Things such as when they go into effect and the property they cover to how they are administered, are some key differences that you should consider when creating your legacy plan. That being said, this doesn’t mean that you will necessarily be choosing between one or the other—most plans include both. In fact, a will is a foundational part of almost every person’s estate plan. However, you may want to combine your will with a living trust to avoid the “blind spots” in basic plans that rely solely on a will. As we’ll talk about more below, the biggest of these blind spots is the fact that if your estate plan only consists of a will, it is guaranteed that your family will have to go to court if you become incapacitated or when you die. To determine the best fit for you and your family, you should meet with us for a Generational Wealth Planning Session. We offer a complete and thorough process for helping you feel confident that you’re choosing the right planning tools at the right fees for yourself and the people you love.
Here are some of the key differences between wills and trusts that you should be aware of.
When They Go Into Effect
A will only will go into effect when you die, whereas a trust takes effect as soon as it’s signed and your assets are transferred into the name of the trust, which is also known as “funding” the trust. Also, 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 is what keeps your family out of court in the event of your incapacity or death.
Because a will only goes into effect when you die, it doesn’t offer any protection if you don’t have your faculties and 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, which can be expensive, time-consuming, and emotionally taxing.
There’s also the possibility that the court could appoint a family member that you’d never want making such important decisions on your behalf, as a guardian. Or, the court might select a professional guardian, giving a complete stranger the ability to be in control of just about every aspect of your life, while also leaving you open to potential fraud and abuse by shady or greedy guardians.
With a trust, however, you can include provisions that appoint someone of your choosing—not the court’s—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 making sure your wishes regarding your medical treatment and end-of-life care are carried out exactly as you intended.
The Assets They Cover
A will covers any asset that is solely owned in your name. A will does not cover property co-owned by you with others listed as joint tenants, nor does it cover assets that pass directly to your loved ones via a beneficiary designation, such as life insurance, IRAs, 401(k)s, and payable-on-death bank accounts.
Trusts, on the other hand, cover any asset that has been transferred, or “funded,” 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 funded to the trust, it won’t be covered, so it’s critical to work with experienced estate planning attorneys like ourselves, to ensure your trust works as intended.
Most attorneys will set up a trust for you, but few will ensure your assets are properly inventoried or funded, and we believe this is the single most important aspect of estate planning, and usually the most overlooked. If you retain us as your estate planning attorneys, 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 one of our membership programs, ensuring your plan works when your family needs it. This keeps your assets from being lost and prevents your family from being forced into court because your plan was never fully completed.
Lastly, even with the support of attorneys like us, it can sometimes be difficult to transfer every single one of your assets into a trust before your death. That being said, 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, or “poured,” into your trust through the probate process.
How They Are Administered
In order for assets in a will to be transferred to a beneficiary, the will must pass through a court process known as “probate”. During probate, the court oversees the will’s administration, ensuring your assets are distributed according to your wishes, with automatic supervision to handle any disputes.
However, probate proceedings can last months or even years, and your family will probably need to hire an attorney to represent them, which can result in expensive legal fees that can drain your estate. During probate, there’s also a chance that one of your family members may contest your will, especially if you have disinherited someone or plan to leave significantly more money to one relative than the others.
The bottom line is, if your legacy plan only consists of a will, you are guaranteeing that your loved ones will have to go to court if you become incapacitated or when you die.
In addition, since probate is a public court proceeding, your will becomes public record upon your death. This means anyone 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 and frauds.
Unlike wills, trusts don’t require your family to go through probate, which can save them time, money, and alleviate any potential for conflict. Plus, when you have a trust set up, the distribution of your assets happens in the privacy of our office—not the courtroom—so the contents and terms of your trust will remain completely private.
How Much They Cost
Wills and trusts do differ in cost—not only when they’re created, but also when they’re used. The average will-based estate plan can run between $1,000 to $3,000, depending on the options selected. An average trust-based plan can be set up for $4,000 to $10,000, again depending on the options chosen.
So at the start, wills are less expensive than trusts, however, wills must go through probate, where attorney and court fees can be expensive, especially if the will is contested. So even though the fees to set up a trust may cost more than what a will does initially, the total cost once probate is factored in can actually make a trust the less expensive option in the long run.
That being said, everyone’s circumstances are different, which is why if you retain us as your ambitious legacy planning attorneys, we won’t create a set of documents until we know what you actually need, and what will be the most affordable solution for you and your family, both now and in the future, based on your family dynamics, your assets, and your desires.
With this in mind, our Legacy Planning Session is designed to compare the costs of will-based planning and trust-based planning with you, so you 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 legacy plan should include a will, a living trust, or some combination of the two is to meet with us for a Legacy Planning Session. During this process, we’ll take you 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.
During our planning session, we will empower you to feel 100% confident that you have the right combination of legacy 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 The Ambitious Legacy Firm. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Legacy Planning Session, during which 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 using the link below to schedule a call with our Client Services Director, who will be able to guide you on scheduling your Legacy Planning Session, or by emailing us at legacy@franco-lawfirm.com. Mention this article when you reach out to us to find out how to get this $750 session at no charge.
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