What is a will?
When referring to a "will", the assumption is that you're talking about a last will and testament, a document that indicates what happens to one's estate (all assets, property, money, holdings, etc.) upon their death.
So, what is a last will and testament ("will"), exactly?
It is a legal document that outlines how a person's assets and property should be distributed upon their death.
It allows individuals to designate beneficiaries for their assets, name guardians for minor children, and appoint an executor to carry out their wishes.
It will go through the probate process, which is the legal process of validating a will, paying off debts, and distributing assets according to the terms of the will.
It becomes public record after the individual's death, which means anyone can access the contents of the will.
Probate
Probate is the legal process through which a court validates a will, settles any outstanding debts and taxes owed by the deceased, and oversees the distribution of assets to beneficiaries according to the terms of the will. While probate serves an important purpose in ensuring that a deceased person's assets are distributed correctly, several aspects of probate can make it undesirable for those with complex estates.
Time-consuming, often taking several months or more to complete, and tying up assets during the probate process.
Costly, with fees associated with court filings, legal representation, executor compensation, and other administrative expenses. These reduce the overall value of the estate and diminish distributions.
Probate considers creditors, lawsuits, and taxes before any beneficiaries; therefore, assets are channeled to repay any outstanding debts before any distributions are made to those named in the will.
Proceedings are made public, which means that anyone can access the documents filed with the court, including the contents of the will, the inventory of assets, and details about beneficiaries and heirs.
The probate court will hear challenges to the will from anyone who shows merit to do so.
What is a trust?
When people hear the word "trust," what typically comes to mind is how wealth is passed down through generations; and how younger members of the family are supported by their elders when they reach a certain age or upon their elders' death.
It is a legal arrangement where a person (the settlor or grantor; in this case - you're loved one) transfers ownership of assets to a trustee, who manages those assets for the benefit of one or more beneficiaries.
It can be created during the lifetime of the settlor (living trusts) or through a will and become active upon the settlor's death (testamentary trusts).
It can help avoid probate for the assets placed within them, allowing for faster distribution to beneficiaries and potentially reducing estate taxes.
It offers privacy since they generally do not go through the probate process and their terms are not publicly disclosed.
Keep in mind that once your loved one creates a trust, they have to fund it by transferring assets to it, making the Trust the owner of those assets. This makes trusts more complex to set up, but avoiding probate is a tremendous benefit for some and this alone can justify the additional complexity.
How do I know what my loved one needs?
There are several things to consider when deciding whether your loved one needs a will, a trust, or both.
Complexity of the estate. If your loved one's estate is relatively simple, with few assets and straightforward distribution wishes, a will may be sufficient. However, if they have significant assets, own property in multiple states, or have complex distribution instructions, a trust may be more appropriate.
Probate avoidance. If you want to avoid the will probate process (court proceedings) or reduce the time and costs associated with it, a trust may be preferable. Assets held in a trust generally bypass probate, allowing for faster distribution to beneficiaries.
Privacy concerns. If you prefer to keep estate details private, a trust may be a better option since it does not become part of the public record like a will does. This is valuable in case of concern that others learning of your loved one's death may come seeking a portion of the assets. Trusts provide more confidentiality because they are not subject to probate proceedings.
Incapacity planning. If your loved one is concerned about incapacity during their lifetime, a trust may offer more flexibility for managing assets and ensuring affairs are handled according to their wishes without the need for court intervention. Some types of trusts, such as revocable living trusts, allow for seamless management of assets if they become incapacitated.
Control over assets. Trusts can offer more control over how and when assets are distributed to beneficiaries. For example, your loved one can specify conditions for distributions, such as reaching a certain age or achieving specific milestones. With a will, assets are generally distributed outright to beneficiaries upon their death.
Tax planning. Depending on your loved one's financial situation and goals, trusts can be useful for minimizing estate taxes and providing for future generations through strategies like generation-skipping trusts or irrevocable life insurance trusts.
Cost considerations. Trusts are typically more expensive to set up and maintain than wills due to legal fees and ongoing administrative costs. Consider your and your loved one's budget and whether the benefits of a trust justify the additional expenses.
Is it possible to have both?
Yes.
Having both a will and a trust is a common estate planning strategy that allows individuals to address different aspects of their estate and achieve various goals. The decision to have both a will and a trust depends on the goals, preferences, and estate complexity.
Reasons someone might choose to have both include comprehensive estate planning, backup for assets not in the trust, pour-over will*, guardianship provisions, flexibility and simplicity, and state-specific requirements.
*A pour-over will directs any assets not already transferred to the trust during life to be "poured over" into the trust upon death.
Cost
A will generally costs around $0 - $1,000 to develop depending on the complexity and size of the estate and how the will is created (i.e., do-it-yourself, crafted online, drawn up by an attorney).
A trust generally costs around $150 - $600 for a simple trust constructed online, and $3,000 or more for complex trusts handled in part or wholly by legal professionals.
Is it essential to consult an attorney?
Consulting with an estate planning attorney or financial advisor who can evaluate your loved one's circumstances is advisable for determining the best approach for their estate planning needs. These professionals can provide personalized guidance based on your loved one's goals and preferences.
Seeking professional guidance is highly recommended for more complex situations.
That said, you are not legally required to use an attorney to develop a will or a trust. Your loved one can create a basic will or trust on their own using online resources or template software.
