WILLS vs. TRUSTS: IN PLAIN ENGLISH

It recently occurred to me that I spend time sending out these emails and I appreciate those of you who actually open and read them. But, given the number of clients who begin consultations asking, "So, how is a Will different from a Trust?", I thought it might be helpful to answer that question here, in plain English.

Almost everyone has heard of wills and trusts. Most articles written on these topics, however, often presume everyone knows the basics of these important documents. In reality, many of us do not – and with good reason – as they are rooted in complicated, centuries-old law, from another continent in some cases. In fact, even in law school, the distinction is not really made clear. Let us face it, if you are not an estate planning attorney, these concepts tend to remain merely that – concepts. So, if you are “fuzzy” about wills and trusts, know that you are not alone. After we show you the difference between these two documents, we will tell you why a trust is often the better choice.

Wills vs. Trusts: Defined

Let us take a minute and 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.

A will:

• provides for the distribution of assets owned by you, but not assets directed to others through beneficiary designations (e.g., life insurance or retirement benefits)

• sends assets in your individual name or payable to your estate through the probate process

• allows you to appoint permanent guardians for your minor children

• names the person you wish to settle your estate (e.g., executor or personal representative)

• does not always include protective trusts for beneficiaries and tax planning because many wills are simple 2-3 page documents

• permits you to revoke or amend your instructions during your lifetime

• obligates distributions to be made in the very near future after probate begins

• tends to cost less than a trust on the outset but costs more to settle during court proceedings after death

Trust - A trust is a legal contractual document, signed and witnessed, and 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. A trust:

• has lifetime benefits

• provides for the distribution of your assets

• avoids probate if fully funded

• provides for a successor trustee upon your death or incapacity

• allows for the management of your property – even if you are incapacitated

• can address appointing disability guardians for minor children

• often includes protective trusts for beneficiaries and tax planning

• permits you to revoke or amend your wishes during your lifetime

• has the ability to control who, how, and when distributions are made for generations

• costs more than a simple will on the outset but 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 wherein a decedent's will must be authenticated, outstanding legitimate debts paid, and assets transferred to the beneficiaries. The downside is that probate can take a long time - even years - it is expensive in many places and the entire process is completely public, meaning your nosey neighbor Nancy and evil predator Paul both know exactly who got what and how to contact them. In virtually all cases, the only upside of probate is that creditor claims are cut off.

• Probate Guaranteed with a Will. If you use a will as your primary estate planning tool and you own property in your individual name, or property is made payable to your estate, probate is guaranteed.

• Probate Avoided with a Trust. If you use a fully-funded trust as your estate planning tool, probate is avoided - saving your family time and money.

The Bottom Line on Wills vs. Trusts HOW TO DECIDE: As everyone’s situation is different, it is important to analyze every aspect of your situation – and what the future may hold – so that you can determine what is right for you and whether probate avoidance, incapacity planning, and trust protections have value to you and those you love. In almost every circumstance conceivable, most people receive the greatest overall benefit from having a trust.

BUT - Trusts are not cheap! The preparation nor the funding of them are inexpensive. You get what you pay for. Because they are so beneficial and valuable, you should expect to pay more for a trust than you would for just a will. Just like a house with a lap pool, a finished basement, and central air will cost more than a third floor, three bedroom condo with no elevator. Most attorney's will avoid admitting this reality upfront. But why waste your time or play games with you. (I told you this was plain English!) Estate planning attorneys make good money from trusts. Having said that, I have clients who advised that trust are not in their best interests given their present circumstance. This advice was despite them having come to me convinced they needed a trust because Suze Orman or someone else said so on TV. My response was and is, if Suzy is going to pay for it, then by all means, go ahead! MOST IMPORTANT - DO SOMETHING NOW: Without an estate plan in place, you, your family, and your loved ones are vulnerable to the intestate laws (dying without a will) of your jurisdiction. Call our office now, at 301.892.2713, and we will help you determine whether a Will or a Trust makes sense for your situation. You do not have to make these decisions alone.

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