What are the key differences between wills and trusts? When discussing estate planning, a will is what most people think of first. Indeed, wills have been the most popular method for passing on assets to heirs for hundreds of years. But wills aren’t your only option. And if you rely on a will alone to pass on what matters, you’re guaranteeing your family has to go to court when you die.
In contrast, other estate planning vehicles, such as trusts, which used to be available only to the uber wealthy, are now being used by those of all income levels and asset values to keep their loved ones out of the court process.
But determining whether a will or a trust is best for you depends entirely on your personal circumstances. And the fact that estate planning has changed so much makes choosing the right tool for the job even more complex.
The best way for you to determine the truly right solution for your family is to meet with us as your Personal Family Lawyer® for a Family Wealth Planning Session™. During that process, we’ll take you through an analysis of your personal assets, what’s most important to you, and what will happen for your loved ones when you become incapacitated or die. From there, you can make the right choice for the people you love.
In the meantime, here are some key distinctions between wills and trusts you should be aware of.
A will only goes into effect when you die, while a trust takes effect as soon as it’s signed and your assets are transferred into the name of the trust. To this end, a will directs who will receive your property at your death, and a trust specifies how your property 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 offers no protection if you become incapacitated and are no longer able to make decisions about your financial 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.
With a trust, however, you can include provisions that appoint someone of your choosing—not the court’s—to handle your medical and financial decisions if you’re unable to. This keeps your family out of court, which can be particularly vital during emergencies, when decisions need to be made quickly.
A will covers any property solely owned 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 a beneficiary by contract, such as life insurance.
Trusts, on the other hand, cover property 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 us as your Personal Family Lawyer® to ensure the trust is properly funded.
In order for assets in a will to be transferred to a beneficiary, the will must pass through the court process called probate. The court oversees the will’s administration in probate, ensuring your property is distributed according to your wishes, with automatic supervision to handle any disputes.
Because probate is a public proceeding, your will becomes part of the public record upon your death, allowing everyone to see the contents of your estate, who your beneficiaries are, and what they’ll receive.
Unlike wills, trusts don’t require your family to go through probate, which can save both time and money. And since the trust doesn’t pass through court, all of its contents remain private.
Wills and trusts do differ in cost—not only when they’re created, but also when they’re used. The average will-based plan can run between $500-$2000, depending on the options selected. An average trust-based plan can be set up for $3,000-$5,000, again depending on the options chosen. So at least on the front end, wills are far less expensive than trusts.
However, wills must go through probate, where attorney fees and court costs can be quite hefty, especially if the will is contested. Given this, the total cost of executing the will through probate can run as high as $8,000-$10,000 or more.
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.
During our Family Wealth Planning Session™, we’ll 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.
As your Personal Family Lawyer®, we offer expert advice on wills, trusts, and numerous other estate planning vehicles. Using proprietary systems, such as our Family Wealth Inventory and Assessment™ and Family Wealth Planning Session™, we’ll carefully analyze your assets—both tangible and intangible—to help you come up with an estate planning solution that offers maximum protection for your family’s particular situation and budget. Contact us today to get started.