The Basics of Estate Planning: Understanding Wills and Trusts
Two of the most fundamental estate planning instruments are wills and trusts. They’re the building blocks of the majority of estate plans. The purpose of these two documents is similar—to pass along your assets according to your wishes when the time comes. They do this in two distinctly different ways.
You should understand the things that distinguish wills from trusts as you create your estate plan. These documents are different in their administration, their timing and the property they are used to cover. The differences don’t make one or the other superior. Rather, both documents may be used together to accomplish your goals best.
Almost every estate plan includes a last will and testament. However, will alone may leave gaps that require a living trust.
There is one glaring problem with an estate plan that consists of only a will: Such a plan will force your loved ones to go through the court system at the time of your death or incapacity.
Crafting the best estate plan for you and your loved ones requires the advice of an attorney. Choose one with advanced knowledge of estate planning, including the use of wills and trusts.
At the Law Office of Janet L. Brewer, you get the benefit of a thorough estate planning process. Well-designed estate plans give you confidence that you’ll have the right tools in place to protect yourself and your loved ones. Working with an experienced and efficient estate planning lawyer is the key.
Before meeting with an attorney, review the basics about how trusts and wills might be used in your estate plan.
Wills and Trusts Start at Different Times
Your will only becomes active at the time of your death. Trusts, on the other hand, are effective as soon as they’re signed and have assets transferred to them. That process is known as “funding” the trust.
In short, your will tells the court who should get what when you pass. A trust can dictate how the ownership and maintenance of property is handled during your life, when you die, or upon a particular time or condition.
The timing of the trust is the thing that can help your loved ones avoid going to court. If set up correctly, they can avoid the probate process when you pass or become incapacitated.
It’s important to note that – unlike a trust – a will has no power to help your family manage your affairs in the event of your incapacity. The power of a will is tied exclusively to the end of a life. If you lose the ability to make your own financial decisions, a will cannot help. Your loved ones will need to handle these key issues alone: without proper planning, your family will be forced into the difficult process of having a conservator appointed for you. This is done by petitioning the court, which can be costly, time-consuming, and stressful.
Perhaps more worrisome is the potential for the court to appoint an unsuitable person to manage your affairs. Planning in advance allows you to select the family member most able to protect you in this vulnerable situation.
The court may also opt for a professional conservator in some cases. That would mean the person making these vital decisions could be someone you’ve never met. They would have no idea what your preferences might be.
A trust can resolve these issues by establishing your wishes in a legally binding document. You can name the person or people you want to have authority over your life and assets should you become incapacitated.
A trust can work together with other important documents, including a carefully prepared medical power of attorney. In tandem, these can help your family avoid conflict and unnecessary stress. They’ll also legally establish the type of care and treatment you receive at the end of your life. These deeply personal preferences will be carried out according to your wishes.
Assets Covered by Wills and Trusts
Wills can cover assets that are the sole property of the decedent or are held as “tenants-in-common” with another person. Wills can’t distribute property held in joint tenancy. They also can’t distribute assets that pass to named beneficiaries. These include 401(k) accounts, IRAs, life insurance policies, and bank accounts with payable-on-death designations.
For an asset to be covered under a trust, it only needs to be transferable to the trust. Retirement accounts and insurance policies can be “funded” to a trust by naming the trust as the account’s or policy’s beneficiary. The risk with trusts is that unless property is transferred correctly, it won’t be included in the trust. Work with a knowledgeable estate planning lawyer for help ensuring your trust is handled correctly.
Finding a lawyer to create a trust is straightforward. It’s harder to find one who will take the time to ensure that your assets are correctly inventoried and funded to the trust. This is the most critical part of using a trust to achieve your estate planning objectives. Yet, it rarely receives the attention it deserves.
Finally, even with the support of a knowledgeable lawyer, it can sometimes be a logistical challenge to transfer every single one of your assets into a trust before your death. Even a carefully crafted estate plan can miss assets as you gain and lose them over time. For that reason, trusts are partnered with a “pour-over” will. With a pour-over will in place, all assets not held by the trust upon your death are transferred, or “poured,” into your trust through the probate process.
Differences in Will and Trust Administration
Probate is the process courts go through to transfer assets from a decedent to beneficiaries in accordance with the will. The court ensures that the will is administered properly. They make sure your property is passed along in the manner you articulate in the will. The court is also there to handle any disputes that arise over the will.
Probate has benefits, but it also has drawbacks. The process can be painfully slow, lasting months or years. It’ll also likely force your loved ones to get a lawyer to protect their interests. This can be expensive, reducing how much of your estate ultimately reaches them.
Probate can also invite litigation if one or more of your family members believes your will is invalid. This can happen if you’re distributing assets unevenly or disinheriting a family member. If you have reason to believe there will be hard feelings, probate might lead to problems.
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.
One more thing to consider is that probate, as a court proceeding, creates a public record. You may prefer to keep your assets and estate plan away from prying eyes. Public information about who inherited what could cause loved ones to be targeted by criminals looking to scam or defraud them.
Trust administration differs from wills in that there is no need for the probate process, which keeps the process private. Avoiding probate can prevent disputes and be more cost-effective and quick. It also avoids the public aspect of probate. Your assets will be distributed privately rather than in court.
The Cost of Wills vs. Trusts
One of the many differences between wills and trusts is cost. The two documents cost differing amounts, both to create and to use. Wills must go through probate, where attorney fees and court costs can be quite pricey, especially if the will is contested. So 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.
Every situation is unique. Your estate may need some documents and not need others. A lawyer uses their experience to ensure that your plan is built to achieve your goals. Your plan should take your current and future plans into account. It should also accommodate your overall circumstances regarding family, health, finances and goals.
The Best Solution for You and Your Loved Ones
Estate planning can be complicated. Finding the right balance between wills, living trusts and other planning documents calls for an experienced estate planning attorney.
At the Law Office of Janet L. Brewer, you get the help you need to build an estate plan. Every plan will match your unique situation. Start the process today by contacting our Los Altos offices online or calling 650-325-8276.
