There are two basic kinds of estate planning: will-based and trust-based. So, it should be easy to choose, right? It seems simple. Wills are the foundation of will-based plans and trusts are the base of a trust-based plan. However, as you start working out your estate plan, you’ll learn there are some important differences between the two.
The Basics: Wills and Trusts
A last will and testament (Will)is how a person (the testator) takes care of important business that occurs after they pass away with the help and assistance of the probate court. It’s really a letter to the Judge of Probate Court. The testator states who gets their property, names someone to handle probate of their estate, and makes specific bequests. When the testator has children, the Will usually states who will take care of those children if the testator dies while they are minors. Since a last will guarantees a probate action, it is normally supervised by a judge and your affairs become a member of public record. Most people hire an attorney to help, in our experience, so the costs include court fees and attorney fees. Since the judge wants to make sure they do a good job, most probates take much longer than administering a trust based estate plan.
A trust is a contract for the treatment of property assigned to the trust by the settlor. If property is titled in the name of the trust, it gets treated as determined by the trust, not as adjudicated by the probate court. The settlor signs a document that contains the terms of the trust and names beneficiaries. At that point, the trust is an empty vessel. The settlor must transfer property to the trust, which is called “funding” the trust. This is called a “trust-based” plan because the settlor’s intention is that their property pass to beneficiaries through the trust and not by probating their Will.
Which Plan Is Right for Me?
Well, that depends – the answer is more art than science. If you have more than $100,000 per heir after getting the face amount of life insurance, a trust-based plan is probably best. Part of it is who do you want to be in charge. A will based estate plan puts the judge in charge. A trust-based solution puts you in charge. Consider the following factors when deciding between a will-based plan or a trust-based plan:
- Confidentiality. Wills become public record when they are submitted to probate. Trusts do not. Anyone can check most probate court records by going to the courthouse or accessing them online. So, your nosy Cousin Geoffrey can read your Will when it becomes public record, but not your trust (in most cases).
- Easy Distribution. Wills have to go through probate before estate assets are distributed to the heirs. Property passed to heirs through a trust, however, transfer more quickly in part because the court system typically is not involved.
- Disability. Wills can do nothing to address periods of your incapacity – you have to have a conservatorship proceeding to determine competency. A trust based solution can solve that – no proceeding, no public airing of incapacity, you determine who controls the assets.
- Asset Protection. Wills distribute assets after the testator’s death with zero asset protection during the testator’s life. However, many trusts offer asset protection before and after a settlor passes away.
- Costs. It’s typically more expensive to establish and fund a trust in the short term when comparted to a simple Will. However, since trust assets typically avoid probate, it is normally less expensive overall. While the upfront cost may be a little more, these fees are likely offset by saving on legal fees incurred during a probate proceeding.
What Will Be the Foundation of Your Estate Plan?
The attorneys at Virtus Law can discuss your options while helping you develop a complete estate plan. Contact Virtus Law at 612.888.1000 or send us an email at email@example.com. Our main office is in Minneapolis, with other offices located in Maplewood, Cambridge, Edina, Mendota Heights, and Red Wing.