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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.
From when they take effect and the property they cover to how they are administered, wills and trusts have some key differences that you need to consider when creating your estate plan. That said, when comparing the two documents, you won’t necessarily be choosing between one or the other—most plans include both.
In fact, a will is a foundational part of nearly every person’s estate plan. Yet, you may want to combine your will with a living trust to avoid the blind spots inherent in plans that rely solely on a will. As you’ll learn below, the biggest of these blind spots is the fact that if your estate plan only consists of a will, your family may need court proceedings if you become incapacitated or when you die.
To determine the right solution for your family, you should meet with us, your Personal Family Lawyer® for a Legacy Planning Session. We offer a comprehensive process for helping you feel confident that you’ve chosen the right planning tools at the right fees for yourself and the people you love.
In the meantime, here are some of the key differences between wills and trusts that you should be aware of.
When They Take Effect
A will only will go into effect when you die, while a trust takes effect as soon as it’s signed and your assets are transferred into the name of the trust, known as “funding” the trust. To this end, a will directs who will receive your assets upon your death, while a trust specifies how your assets will be distributed before your death, at your death, or at a specified time after death. This is what keeps your family out of court in the event of your incapacity or death.
Furthermore, because a will only goes into effect when you die, it offers no protection if you become incapacitated and are no longer able to make decisions about your financial, legal, and healthcare needs. If you do become incapacitated, your family will have to petition the court to appoint a conservator or guardian to handle your affairs, which can be costly, time-consuming, and stressful.
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 decisions on your behalf. Or the court might select a professional guardian, putting a total stranger in control of just about every aspect of your life and leaving you open to potential fraud and abuse by crooked guardians.
With a trust, however, you can include provisions that appoint someone of your choosing—not the court’s—to handle your assets if you’re unable to do so. When combined with a well-drafted medical power of attorney and living will, a trust may reduce the need for court involvement during incapacity, while care directives can help record your medical and end-of-life preferences. Their effect depends on valid preparation, funding where relevant, administration, and the circumstances.
The Assets They Cover
A will covers any asset solely owned in your name. 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, or “funded,” to the trust or where the trust is the named beneficiary of an account or policy. That said, if an asset hasn’t been properly funded to the trust, it won’t be covered, so it’s critical to work with your Personal Family Lawyer® to review your trust’s terms and funding.
Trust funding and a current asset inventory are important parts of estate planning. As your Personal Family Lawyer®, we can help review your asset inventory, titling, and funding when you create your trust and as you acquire new assets, with ongoing review options. Keeping that information current may reduce the risk of overlooked assets and probate involving assets not properly transferred into the trust.
Finally, even with the support of a lawyer like us, it can sometimes be difficult to transfer every single one of your assets into a trust before your death. Given this, consider combining your trust with what’s known as 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.
How They Are Administered
In order for assets in a will to be transferred to a beneficiary, assets requiring court administration generally pass through probate. During probate, the court oversees the will’s administration, generally supervising distributions under your will and applicable law, including any disputes.
However, probate proceedings can drag out for months or even years, and your family will likely have to hire an attorney to represent them, which can result in costly legal fees that can drain your estate. During probate, there’s also the chance that one of your family members might contest your will, especially if you have disinherited someone or plan to leave significantly more money to one relative than the others.
Bottom line: If your estate plan consists of a will alone, your family may need court proceedings if you become incapacitated or when you die.
Furthermore, since probate is a public proceeding, your will becomes part of the public record upon your death. This means everyone will be able to learn the contents of your estate, who your beneficiaries are, and what they inherit, setting them up as potential targets for scam artists and frauds.
Unlike wills, properly prepared and funded trusts may allow trust assets to pass outside probate, which can save them time, money, and the potential for conflict. Plus, when you have a trust set up, the distribution of your assets happens in the privacy of our office—not the courtroom—so trust administration generally involves less public disclosure than probate, though court proceedings or other legal requirements can make some information public.
How Much They Cost
Wills and trusts do differ in cost—not only when they’re created, but also when they’re used. The average will-based estate plan can run between $1,000 to $2,000, depending on the options selected. An average trust-based plan can be set up for $4,000 to $8,000, again depending on the options chosen. So at least on the front end, wills are less expensive than trusts.
However, 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.
That said, each family’s circumstances are different, and this is why as your Personal Family Lawyer® we do not create any documents until we know what you actually need, and what will be the most affordable solution for you and your family, both now and in the future, based on your family dynamics, your assets, and your desires.
With this in mind, our Legacy Planning Session Process is designed to compare the costs of will-based planning and trust-based planning with you, so you know exactly what you want and why, as well as the total costs and benefits over the long term.
Find The Option That’s Right For Your Family
One way to discuss whether your estate plan should include a will, a living trust, or some combination of the two is to meet with us as your Personal Family Lawyer® for a Legacy Planning Session. During this process, we’ll take you through an analysis of your assets, what’s most important to you, and what will happen to your loved ones when you become incapacitated or die.
Sitting down with us, your Personal Family Lawyer® will empower you to feel 100% confident that you have the right combination of estate planning solutions to fit with your unique asset profile, family dynamics, and budget. Schedule your appointment today to get started.
This article is a service of AMO LAW, Personal Family Lawyer®. We do not just draft documents; we help you make informed decisions about life and death, for yourself and the people you love. That’s why we offer a Legacy Planning Session, during which you can become more financially organized and consider planning choices for the people you love. You can begin by calling our office today to schedule a Legacy Planning Session and mention this article to find out how to get this $750 session at no charge.
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