Most humans have a difficult time thinking about death, but it is a life circumstance that we all face. Part of being a responsible human is making the necessary arrangements for distribution of your cash, assets, and other property in the event of your death. Most people are aware of the Will as a legal tool, but it’s not the only one available. Living Trusts are another way to make sure that your assets go where you want them to, and in a timely fashion. Wills and Trusts are both great legal tools, but some people may want to use both of them together. Let’s go over Wills, Trusts, and the circumstances where someone might want to use both of them concurrently:
A last will and testament is a written document that is witnessed and signed that indicates how your property will be distributed in the event of your death. Wills are the most popular way for people to express their wishes after their life has ended. People can cancel their Will at any time during their life, and may alter or change it at any time as well. If you have children, using a will allows you to appoint a guardian of your choosing for your kids if you die. A properly drawn-up will is a binding legal document that can be difficult to dispute in court. Here are some of the advantages and disadvantages of using a will:
Leave property to those you choose – One of the greatest advantages of using a Will is the ability to choose who receives what from your estate. Without a will, people who you’re not close to or former spouses can make a claim on your estate and tie the process up in court for long periods of time.
Name a guardian – As I mentioned before, a will allows you to choose where your children will go in the event of your death, and to set aside some money for their support.
Choose an Executor – When you create a will, you can name who you want to make sure your wishes are carried out, otherwise known as the executor of your estate. You can choose someone who is willing to handle the duties, and who you trust to do what you wish. Without a will the court will appoint somebody to administer your estate in the way that they see fit.
Personal – Any personal wishes you want to be carried out can be included in your will. From burial arrangements to pet care, you can include anything you wish.
You can amend your will – You can change your will at any time to reflect your current wishes as your life changes. Most people have significant life changes and amend their Wills several times.
You can cancel your will – If you decide that your will doesn’t reflect your wishes or interests, you may cancel it at any time. You are then free to draft a new Will that you are satisfied with.
Wills are affordable – Drafting a will is incredibly affordable, and can usually be done for under $200.
Disadvantages of a Will
Wills can be challenged – Even though wills are strong legal documents, people who feel you owe them something are free to challenge your will. Challenges can be a costly and lengthy process for your estate.
May need probate – If an estate is large enough, upon your death your will must be filed for probate. Probate is the legal procedure that distributes assets according to your final wishes. Probate can be a lengthy and expensive process that depletes the value of your estate dramatically.
Could become public – Once your will is filed for probate it, unfortunately, becomes public record. As a result, anyone can search for your Will and see the contents in its entirety. Anyone who desires to retain the privacy of their Will should avoid probate.
Taxes – Inheritance taxes can be steep, and they are collected at the state and federal levels. If a Will is not carefully crafted, beneficiaries could get stuck with large tax bills.
If a will is drawn up correctly, all of the disadvantages can be addressed and minimized. For most people, a will is the best option for declaring their final wishes. Now let’s take a look at the Trust:
A trust is an amount or pool of assets held for a beneficiary. After your death, a trustee designated by you makes sure the beneficiary receives the assets in the way that you wish. Let’s examine the advantages and disadvantages of trusts:
Avoid probate – If you use a living trust, your property can go directly to your beneficiaries, no matter how large the amount is. This ensures a quick transfer of property and protects the value of your estate.
Retain privacy – Unlike a will involved in probate, your trust is not a public document. For those who want to keep their final wishes private, using a living trust is the best way to do so. No matter how large your estate is, trusts cannot be filed for probate.
Simplicity – For complex estates or ones involving property in multiple states or countries, a Trust is the best option. Assets will be distributed without proceedings in each state and country, which will save time and money.
Immediate – Trust documents go into effect instantly, so you can also include living wishes like an appointed guardian should you become incapacitated, or any end of life directives you may have that you would like to be followed. Any other actions you would like to include can be added to take place before the time of your death, which can be helpful.
Expensive to set up – Creating a trust can be a complicated process. Trusts take more time to prepare, so they are naturally more expensive than a will. The normal cost of setting up a trust is around $1,000+.
Retitling – In order to avoid probate court, you need to retitle your assets to your newly created Trust. Retitling can be an expensive and lengthy process, and it’s usually not part of the expense of creating your trust.
Taxes – There are no estate tax benefits for creating a living trust. Trusts also don’t offer any asset protection, so any creditors you may have can gain access.
Longer window to challenge – The time allowed to challenge a trust is much longer than that for a will. Wills usually have a 30-90 day window, while in many states you can challenge a trust for up to 5 years.
You still need a will – Many things can happen to you, your assets, and your trust before you die. As a safety net, you still need to have a will in place. Many wills include the creation of the trust in them. If there are problems with your trust, the will takes precedence and goes into probate.
Trusts are more expensive to create initially, but they are the quickest and cheapest way to distribute your assets while avoiding probate. The advantage of having directives before your death can be a great advantage to your family and other loved ones.
Do I Need a Trust if I Have a Will?
The answer to this question is different based on your own life circumstances. There are three main items to examine when determining if a trust is the right tool for you if you already have a will in place:
Age – There are costs associated with establishing and maintaining a trust. If you are under 55-60 years old, these are expenses that you just don’t need. Use a properly created will to transfer your property should you die unexpectedly.
Size of estate – If you don’t have much in the way of assets, there’s no point in trying to avoid probate by establishing a living trust. If you have a large estate, you may want to establish a trust even at a young age to protect the value of your assets in case you die. The size of your estate is a great way to figure out if you need a trust.
Marital status – If you are happily married and plan to leave most of your property to each other, then a trust is just not necessary. Even for larger estates, spousal rights make probate times very short, so the added expenses of a trust should be avoided.
Deciding whether a will or a trust, or a combination of the two, is best for you can be a complicated decision. Most people should start with a well-prepared will and then reexamine their options when they reach the age of about 60. Wills can be written to establish trusts within them to distribute assets and avoid probate after death, so beneficiaries can receive their inheritance quickly and privately. The best way to decide which option is best for you is to consult with a legal professional.