Wills and trusts are two of the most commonly used estate planning documents and they form the foundation of most estate plans. While both documents are legal tools designed to distribute your assets to your loved ones upon your death, the way in which they work is quite different.
When they take effect and the property they cover to how they are administered, wills and trusts have some key differences that you need to consider when creating your estate plan. That said, when comparing the two documents, you will not necessarily be choosing between one or the other, because most estate plans should include both.
A will is a foundational part of nearly every person’s estate plan, but you may want to combine your will with a living trust to avoid the deficiencies that are commonly found in plans that rely solely on a will. As you will learn below, the biggest of these blind spots is the fact that if your estate plan only consists of a will, you are guaranteeing your family has to go to court if you become incapacitated or when you die.
To determine the right solution for your family, you should meet with me, as your Personal Family Lawyer® for a no-cost initial consultation. I offer a comprehensive, yet easy-to-understand process for helping you feel confident that you have chosen the right planning tools at the right fees for yourself and the people you love.
In the meantime, here are some of the key differences between wills and trusts that you should be aware of.
When They Take Effect
A will only will go into effect when you die, whereas a trust takes effect as soon as it is signed and your assets are transferred into the name of the trust – a process known as “funding” the trust.
A will directs who will receive your assets upon your death and must be approved by a probate court, while a trust specifies how your assets will be distributed before your death, at your death, or at a specified time after death, without any court intervention.
Furthermore, because a will only goes into effect when you die, it offers no protection if you become incapacitated 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 costly, time-consuming, and stressful.
In the event of a guardianship proceeding, there is always the possibility that the court could appoint a family member as a guardian that you would never want making such critical decisions on your behalf. Alternatively, the court might select a professional guardian, putting a total stranger in control of just about every aspect of your life and leaving you open to potential fraud and abuse by crooked guardians.
However, with a trust, you can include provisions that appoint someone of your choosing—not the court’s—to handle your assets if you are 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. This planning ensures that 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 owned solely in your name. A will does not cover property co-owned by you with others listed as joint tenants, nor does your will 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 has not been properly funded to the trust, it will not be covered. Therefore, it is critical to work with your Personal Family Lawyer® to ensure your trust works as intended.
Most lawyers will set up a trust for you, but few will ensure your assets are properly inventoried or funded, and I believe this is the single most important aspect of estate planning—and it is one that is almost always overlooked. As your Personal Family Lawyer®, I will make sure your assets are properly inventoried and titled when you initially set up your trust. I will 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, with various maintenance plans to ensure your plan works when your family needs it. This keeps your assets from being lost and prevents your family from being inadvertently forced into court because your plan was never fully completed.
Finally, even with the support of a lawyer like myself, it can sometimes be difficult to transfer every single one of your assets into a trust before your death. Given this, you should consider combining your trust with what is known as a “pour-over” will. With a pour-over will in place, all assets that are not held by the trust upon your death will be 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 the 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 drag out for months or even years and your family will likely have to hire an attorney to represent them, which can result in costly legal fees that can drain your estate. During probate, there is also the chance that one of your family members might contest your will, especially if you have disinherited someone or plan to leave significantly more money to one relative than the others.
Bottom line: If your estate plan consists of a will alone, you are guaranteeing your family will have to go to court if you become incapacitated or when you die.
Since probate is a public proceeding, your will becomes part of the public record upon your death. This means everyone 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 do not require your family to go through probate, which can save them time, money, and the 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 differ in cost—not only when they are created, but also when they are used. The average will-based estate plan can run between $750 to $2,500, depending on the options selected. An average trust-based plan can be set up for $2,500 to $5,000, again depending on the options chosen. So at least on the front end, wills are less expensive than trusts.
However, because wills must go through probate, the attorney fees and court costs can be quite pricey, especially if the will is contested. Even though a trust may cost more upfront to create than a will, the total costs once probate is factored in can actually make a trust the less expensive option in the long run.
That said, each family’s circumstances are different. This is why I do not create any documents until I 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, my personalized estate planning process 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 estate plan should include a will, a living trust, or some combination of the two is to meet with me as your Personal Family Lawyer™. During this process, I take you through an analysis of your assets, what is most important to you, and what will happen to your loved ones when you become incapacitated or die.
Sitting down with me will empower you to feel 100% confident that you have the right combination of estate planning solutions to fit with your unique asset profile, family dynamics, and budget. Schedule your no-cost initial consultation with me today to get started.
