Should I Have a Will or a Trust?
Everyone has heard the terms "will" and "trust," but not everyone knows the differences between the two. Both are useful estate planning devices that serve different purposes, and both can work together to create a complete estate plan.
One main difference between a will and a trust is that a will goes into effect only after you die, while a trust takes effect as soon as you create it. A will is a document that directs who will receive your property at your death and it appoints a legal representative to carry out your wishes. By contrast, a trust can be used to begin distributing property before death, at death, or afterwards. A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." A trust usually has two types of beneficiaries -- one set that receives income from the trust during their lives and another set that receives whatever is left over after the first set of beneficiaries dies.
A will covers any property that is only in your name when you die. It does not cover property held in joint tenancy or in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. In order for property to be included in a trust, it must be put in the name of the trust.
Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid and the property gets distributed the way the deceased wanted. A trust passes outside of probate, so a court does not need to oversee the process, which can save time and money. Unlike a will, which becomes part of the public record, a trust can remain private.
Wills and trusts each have their advantages and disadvantages. For example, a will allows you to name a guardian for children and to specify funeral arrangements, while a trust does not. On the other hand, a trust can be used to plan for disability or to provide savings on taxes. Your attorney can tell you how best to use a will and a trust in your estate plan.
Among the chief advantages of trusts, they let you:
Put conditions on how and when your assets are distributed after you die;
Reduce estate and gift taxes;
Distribute assets to heirs efficiently without the cost, delay and publiIrvine of probate court. Probate can cost between 5% to 7% of your estate;
Better protect your assets from creditors and lawsuits;
Name a successor trustee, who not only manages your trust after you die, but is empowered to manage the trust assets if you become unable to do so.
Trusts are flexible, varied and complex. Each type has advantages and disadvantages, which you should discuss thoroughly with your estate-planning attorney before setting one up.
When it comes to cost, a basic trust plan may run anywhere from $1,600 to $3,000, or possibly more depending on the complexity of the trust. Such a plan should include the trust setup, a will, a living will and a health-care proxy. You will also pay fees to amend the trust if it's revocable and to administer the trust after you die.
One caveat: Assets you want protected by the trust must be retitled in the name of the trust. Anything that is not so titled when you die will have to be probated and may not go to the heir you intended but to one the probate court chooses.
For a trust in which you want to put the majority of your assets -- known as a revocable living trust -- you also have to have a "pour-over will" to cover any of your holdings that might be outside of your trust if you die unexpectedly. A pour-over will essentially directs that any assets outside of the trust at the time of your death be put into it so they can go to the heirs you choose.
Disclaimer: This article is intended to provide general information. The content of this publication is for informational purposes only. Neither this publication nor its author is rendering legal or other professional advice or opinions on specific facts or matters. No attorney-client relationship is created by this advisory, nor by any response to the information herein, unless and until a conflicts review has been conducted by Steven F. Bliss, and a written agreement containing all terms of representation has been signed.