Estate planning is a very broad (and sometimes confusing) topic. But when you push past all the legalese and statutes, there are two main sides to estate planning: What happens to your STUFF when you die and who takes care of your SELF when you become incapacitated. This blog post will focus on the first part of that equation.
When it comes to deciding what happens to your STUFF, most people are familiar with the two main estate planning options:
Option 1: a Last Will and Testament.
Option 2: a Living Trust.
There are, of course, other estate planning options that can control what happens to your assets after your death, but we will save those topics for another day.
Wills vs. Trusts
If you died today, what would you want to happen to your STUFF? Maybe you want your family to get everything. Or maybe you don't want a particular family member to get anything. Whatever your preferences, most people care about what happens to their STUFF after their death.
Yet only 42% of U.S. adults currently have a Will or a Trust. Perhaps part of that is due to the fact Wills and Trusts can be very complex, and attorneys often do not do a good job of comparing and contrasting these two documents. We're hoping to change that.
To help you better understand these legal documents, we decided to answer some of the more common questions about Wills and Trusts. How are these documents similar? How are they different? Is one better than the other? Should Rachel have ended up with Joey?
By the end of this blog post, you will be able to dazzle your Friends (*wink*) and family by answering these questions and by making an intelligent, informed decision regarding your estate plan. Well, "dazzle" might be a bit strong. But you will at least be able to impress them with your supreme estate planning knowledge. So let's dive in.
How are a Will and a Trust similar?
Before we explain how Wills and Trusts are different, it is important to understand how they are similar. After all, they both try to achieve the same estate planning objective: deciding what happens to your STUFF after your death.
First, Wills and Trusts are both revocable documents. Revocable is just a fancy way of saying that you can change (or cancel entirely) the terms of the document. Importantly, however, a Will or Trust is only revocable as long as you are competent. If, for instance, you develop severe dementia, you may not have the legal capacity necessary to sign an estate planning document.
Both documents also allow you to name representatives to manage your estate after your death. In a Will, you appoint an executor (sometimes called a "personal representative" or "administrator") who will be in charge of your estate. Remember: a Will is still subject to probate. An executor is simply a name for the person who controls the probate process and manages the distribution of your estate (i.e., he or she executes the terms of your Will).
In a Trust, you designate a successor trustee, who serves essentially the same purpose as the executor of a Will. However, assets titled in the name of a trust can avoid probate. So unlike an executor, a trustee likely will not need to initiate or manage a probate.
Lastly, both a Will and a Trust allow you to name a guardian for minor children. What happens to your children if you die? Initially, a guardian and/or conservator will need to be appointed for your kids. A guardian is the person who manages your child's care while they are a minor; a conservator is the person who manages the assets you leave to your child until they reach age 18.
If you have minor children, your estate plan should provide for their care in the event of your death. We discuss those estate planning options in greater depth in this blog post, suffice it to say that both a Will and a Trust allow you to nominate someone who, if qualified and willing to serve, could be appointed as guardian/conservator for your minor child(ren).
There can be other similarities between a Will and a Trust, but these are the main characteristics that make them alike. What most people are interested in, however, is what makes these documents different.
What are the differences between a Will and a Trust?
Although there are a number of similarities between these documents, their differences are crucial to understand.
A Will takes effect only after your death; a Trust takes effect right now. This matters because a Trust can provide for the care of your assets (and your minor children) in the event of your incapacity. A Will, however, does not take effect until you are deceased.
A Trust allows your successor trustees to manage assets for beneficiaries who are unable to responsibly manage their own assets; a Will gives you no such option. Would you trust an 18 year old kid with $100,000? Your child may be responsible, but giving him or her all of your estate at once can be a recipe for disaster. A Trust allows you to control the distribution of your estate to your child(ren), whereas a Will gives it to them in a lump sum.
A Trust is a private document. But because a Will is subject to probate, a Will must be filed in court (meaning the public can freely access it) along with a description of all your assets and beneficiaries. Everyone will know what you have.
Perhaps most importantly, a Will must still go through probate to transfer title of your assets to your beneficiaries. Assets titled in the name of a Trust are not subject to probate. Since probate can take a year or more and cost $4,000 - 5,000 or more, investing in a Trust now can be a very cost effective estate planning decision.
So, which is better: a Will or a Trust?
One of the most common questions clients ask us is whether a Will is better than a Trust, or vice versa. After all, you want the best estate plan possible, right? So naturally, you want to know which document best disposes of your STUFF.
Unfortunately, when clients ask that question, we have to give the classic lawyer answer: it depends. Estate planning is not a one-size-fits-all proposition. Sometimes, a Will may be more beneficial than a Trust; other times, a Trust more beneficial than a Will.
A Trust is generally more flexible, durable, and cost-effective (in the long term) than a Will. But it is usually also more expensive in the short term. However, cost should not be the sole factor on which you base your decision.
Our job as estate planning attorneys is to help you consider all the relevant factors: your family, your estate planning goals, your assets, the potential unintended consequences that could occur by choosing one document over the other. Choosing an estate plan is a major life decision. Take time to think about what works best for you.
Get a Free Consultation
Because the decision between a Will or a Trust can be so difficult, we highly recommend that you consult with a qualified, experienced estate planning attorney before creating your estate plan.
To discuss which estate planning documents might be best for you, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates today for a free, no-obligation consultation appointment.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]