Will vs. Trust: What Do I Need?

The two most commonly known and used documents in estate planning are the last will and testament and a trust. In many instances, when planning for one's estate, an attorney will ask their client, "Do you want a will, trust, or both?" This question assumes that everyone knows the difference in the functionality and importance of a will and a trust.

An important distinction between a will and trust is that property subject to a will goes through the probate process whereas property that was owned by a trust avoids probate. The probate process has both positives and negatives.

Depending on the state, probating a case can be extremely costly and time consuming. Additionally, there is no privacy in probate. At the beginning of the probate process the will is filed with the court and becomes part of the public record. Not everyone is comfortable with sensitive information that can be within the will becoming public knowledge. Further, a will is more likely to be challenged than a trust. Trusts are rarely challenged, partly because their details are not public. Lastly, anything that goes through the probate process is subject to creditors. Whereas trusts can be a way to protect assets from creditors.

Some people think using a will instead of a living trust is easier though, because there is no additional process for transferring assets throughout one's life. Anything a person owns at their passing automatically becomes part of the estate.

Whereas with a trust, you have to follow certain rules and regulations to transfer assets in and out of the trust. Typically, clients will name themselves as acting trustee throughout their life time. This means that the client is in charge of the assets within the trust. Therefore, when the client wants to transfer real estate into the name of the trust, a new deed will have to be drafted to transfer legal ownership of the property into the trust. A similar process occurs with vehicles that are part of a trust. With assets that do not have legal titles, a bill of sale or simply changing a name within a financial institution can suffice.

One important distinction between a will and a trust is that a trust requires funding to be valuable. The most common issue with regard to trusts is that many people have trusts drafted, but then never transfer legal title of their property to the trust. Thus making the trust valueless. Unlike a will, which requires no action during one's lifetime. In order for a trust to have power, it must have assets via funding. Funding can be the transfer of title of vehicles or property, naming a financial account in the trust, transferring assets via bill of sale, etc. Without assets in the trust, the trust is powerless.

With a trust, the client initially serves as trustee and manages the property or assets. If the client becomes disabled or passes away, the successor trustee or trustees that the client names in the trust agreement automatically take over and manage the property. After the client passes away, the trust property or assets are managed and distributed according to the terms of the trust. No court is involved in this process.

Whereas with a will, after the client passes away title to property or assets passes from the client to the estate and its executor. Eventually, the assets or property will pass to the final beneficiaries. The probate court supervises the process. If the client become disabled, whoever holds the client's power of attorney (POA) has to present the POA to financial institutions and have the institutions accept the POA before the client's assets can be managed. If there is no POA or the financial institutions will not accept the POA, the courts become involved.

There are many factors to consider in the debate of will versus trust, but typically the best option is to have both. A will and trust both have pros and cons, but ultimately the decision boils down to how the client wants the assets managed and transferred. Some factors to consider when debating will versus trust include your goals for cost, efficiency, and privacy.

Please feel free to reach out if you need any assistance planning your estate.