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 vehicles designed to distribute your assets to your loved ones upon your death, the way in which they work is quite different.
Here are some of the key differences between Wills and Trusts that you should be aware of.
The first difference between a Will and a Trust is that a Will does not avoid probate court for your family.
You see, when you die solely owning an asset in your personal name, probate court is the legal process that your loved ones have to go through in order to transfer the ownership of the asset out of your deceased name and transfer the ownership of those assets into your loved ones’ names who are currently living based on who state law says should get your assets or based on who you declare in your Last Will & Testament who should get your assets.
But notice, even if you have a Will, your loved ones still have to go through this legal probate court process in order to get ownership of your assets. This probate court process can last up to 9 to 18 months, or even longer and can cost your family tens of thousands of dollars by the end of it.
I would know, when my dad died when I was 7, my mom had to go through almost 3 years of probate court and had to pay her probate attorney $55,000 by the end of it.
Now contrast that to a Revocable Living Trust, which are becoming more popular among many middle-class families these days. Because, unlike with a Will, you transfer the ownership of all of your assets to your Trust during your lifetime and state who you’d want to inherit your assets after you die. So when you pass away, you own nothing in your personal name, which means your family does NOT have to go through 9-18 months of probate court and pay up to tens of thousands of dollars to get ownership of your assets.
In fact, they can get ownership of your assets in a matter of weeks in the comfort and privacy of an attorney’s office.
The second difference between a Will and a Trust is the time they take effect.
You sign your Will, but your Will only goes into effect after you die. Versus, you sign your Revocable Living Trust and your Trust goes into effect immediately.
Because a Will only goes into effect after you die, it offers no protection in the event that you’re still alive, but have become incapacitated and are no longer able to make decisions about your financial, legal, and healthcare needs.
If you’re incapacitated and only have a Will in place, alone, then your family can not enter you financial accounts to pay for expenses on your behalf. Your family will actually have to petition the court to appoint a conservator or guardian to handle your financial affairs, which can be costly, time-consuming, and very stressful on your loved ones.
And there’s always the possibility that the court could appoint a family member as a guardian that you’d never want making such critical financial decisions on your behalf. Or the court might put in place a total stranger, in the form of a court appointed financial guardian, to be in control of just about every aspect of your life and leaving you open to potential fraud and abuse by crooked guardians (think the Netflix movie “I Care A Lot”).
Now compare that with a Trust, which takes effect immediately. You can include provisions in a Trust that appoint a family member of your choosing—not the court’s—to be your trustee with the legal power to access your assets and make sure the bills are getting paid while you’re alive and incapacitated.
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, while ensuring your wishes regarding your medical treatment and end-of-life care are carried out exactly as you intended.
The third difference between a Will and a Trust is the assets they cover.
A Will covers any asset solely owned in your personal name when you die. 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 into the name of the Trust so the Trust, itself, owns the asset. As an example, John Doe’s Trust would own his home if the deed to his home says it’s owned by John Doe, as trustee of the Doe Living Trust. It will even cover any asset or policy that has made the Trust as the designated beneficiary upon death (such as life insurance or payable on death bank accounts).
That said, if the ownership of an asset hasn’t been properly transferred to the Trust, it won’t be covered by the Trust provisions. So even if you have a Trust, if you didn’t transfer the ownership of your assets into it during your lifetime, then your family will still need to go to probate court.
So in summary, if your estate plan consists of a Last Will & Testament — alone — you guarantee your family will have to go through a mess in probate court if you become incapacitated or when you die. A fully funded Trust will keep your family out of probate court and out of conflict. Wills only become effective at death. Trusts become effective immediately. A Will only covers certain assets after you die. A Trust can cover virtually all of your assets as long as you transferred the ownership of those assets to the Trust before you died to fully fund the Trust.
So What’s The Right Option For Your Family?
Honestly, prescribing medicine without consultation is malpractice. The best way for you to determine whether or not your estate plan should include a Will, a Revocable Living Trust, or some combination of the two, is to first have an initial conversation with an estate planning attorney. If you’d like, you’re more than welcome to schedule an initial 15 minute call with me at a time that works for you (and your spouse if you’re married) by Clicking here.
This article is a service of estate planning attorney Elliott Feldman and the Elliott Feldman Law Group. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Prosperity Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Prosperity Planning Session and mention this article to find out how to get this $750 planning session at no charge.