Would a trust be better than a will?

The question of whether a trust be better than a will has no simple answer since so many factors must be considered in estate planning. (To learn about the differences between wills and trusts, see Relationship Between a Will and a Trust.) Your decision is personal and individual, and must suit your particular situation. What is right for one person might be very wrong for you.

Briefly, a will is a legal document that gives your instructions for distributing your assets after you die. A will allows you to select an executor to manage the distribution of your assets, pay your debts, and handle other administrative duties. In a will, you may name a guardian to raise your minor children if you die before they turn eighteen, and you may choose a property guardian to oversee any assets you leave to your children. A will is not expensive to set up, but it must go through a sometimes costly, often lengthy legal process called probate before the assets may be distributed. During this process, your debts and any estate taxes will be paid out of your estate before your heirs receive their bequests. Fees your estate must pay to the executor, the attorney and to the court add to the expense. Once filed, wills become part of the public record, accessible to everyone.

A living, or inter vivos trust, is a legal relationship in which one person, the trustee, holds property for the benefit of another, the beneficiary. The person who sets up the trust, the trustor or grantor, may also be named as trustee until he or she dies, at which time a successor trustee takes over. Any kind of real or personal property–money, real estate, stocks, bonds, collections, business interests, personal possessions and automobiles—can be transferred to the trust during the trustor’s lifetime. An individual may set up this kind of trust for his own benefit during his lifetime, and then for the benefit of another when he dies. A trust is more complicated and more expensive to set up and manage than a will, but, after death, a trust does not have to go through the time-consuming, expensive probate process. The beneficiaries receive their gifts immediately, or according to the trust instructions. Unlike wills, trusts are private and do not generate a public record, but you cannot choose a personal guardian for your children in a trust.

Once you understand the pros and cons of wills and living trusts, you should consider these questions to determine which is better for you:

Is informal probate an available option? Check with your attorney. Most states have an expedited form of probate for estates under a dollar threshold that varies by state. If your estate could pass under a simplified form of probate, a will might be appropriate for you.

What type of property do you own? If you only have bank and retirement accounts, you don’t need a trust to avoid probate. You just need to fill out simple beneficiary forms–Transfer on Death, TOD, or Pay on Death, POD– which transfer the accounts to your beneficiary automatically. If you want to transfer real estate outside of probate, however, you will need to set up a living trust.

Do you own more than one piece of real property? If so, you may want to consider a living trust since multiple properties complicate the probate process, especially if any of your property is in another state. Each state where property is located usually does a separate probate procedure, which can get expensive due to attorney and court fees.

Are you under 60 years old? If you are under 60 and relatively healthy, preparing a will makes sense, for now along with TOD or POD accounts and joint tenancy ownership of real property, all of which will avoid probate.

Do you have minor children? If the answer is yes, you should set up a will even if you are setting up a trust, so you may select a personal guardian for your children should you die while they are still minors.

Do you have children, grandchildren, or other dependents with special needs? If you do, their access to or control over their inherited property may need to be limited. With a standard will, your property can be passed on to those heirs, but a will alone does not allow you to exercise much control over their use of the property. A trust, possibly a special needs trust, which is actually created in your will, might be a better option. This type of trust is different from a living trust, so you should consult an estate attorney if you think this may be appropriate. Also see Planning for a Disabled Child.

How big is your estate? If you have a fairly large estate, one that totals more than one million dollars, you may not qualify for simplified probate proceedings and the probate costs will likely be high. Make sure your major assets, like real estate and your business, are owned in a way that avoids probate, for instance joint tenancy and/or a living trust.

Will your estate be subject to estate taxes? If your estate is valued at a certain amount, which varies from year to year, your estate will have to pay taxes to the federal and possibly your state governments. (See Estate Taxes) For 2007 and 2008, the threshold is $2 million. It goes up to $3.5 million for 2009, but could come back down to $1 million by 2011. Placing your assets in a living trust does not protect your estate from paying taxes, but an estate attorney can suggest tax planning provisions with a trust that may lessen the amount.

Will you actively manage your estate plan? If you cannot manage it yourself, a living trust may not be your best choice. A trust will only be beneficial if your assets are transferred into it and then managed carefully. If you don’t have the time or the inclination to deal with a trust, a will may make more sense.

What is best for you? In many respects, a living trust and a will accomplish similar objectives but a trust has some advantages that a will does not have. Those advantages, however, come with a price. Whether a living trust would meet your needs better than a will depends on whether the advantages are worth the cost, in money and in time. When making your choice, remember that what is right for one person may not be right for you. Even when your major assets are included in a trust, you may still need a supplementary will to handle anything not included in the trust and to appoint a guardian for your minor children. (See Pour-Over Wills) Your estate plan should be prepared to best meet your needs and those of your family. You may want to consult with both a financial planner and an estate attorney before making any decisions.

Case Studies: Comparing Wills and Trusts for Lasting Legacies

Case Study 1: Simplified Probate With a Will

John, a single individual with a modest estate, wanted a straightforward estate plan. He consulted an attorney who advised him to set up a will along with TOD (Transfer on Death) accounts and joint tenancy ownership for his real property. By doing so, John could avoid the complexities of a trust while ensuring his assets pass smoothly to his beneficiaries after his death. This approach suited John’s needs, and he felt confident that his estate would be distributed according to his wishes.

Case Study 2: Avoiding Probate With a Living Trust

Sarah, a business owner with multiple real properties and significant assets, sought to avoid the lengthy and costly probate process for her estate. She worked with an estate attorney to establish a living trust, transferring her properties and assets into the trust during her lifetime. With a successor trustee named in the trust, Sarah knew that her beneficiaries would receive their gifts immediately after her passing without the need for probate. The privacy of a trust also appealed to Sarah, as it kept her estate matters confidential.

Case Study 3: Planning for Special Needs Heirs

Michael and Laura, a couple with a child with special needs, wanted to ensure their child’s financial security after their passing. They consulted an estate attorney who recommended setting up a special needs trust within their will. By doing so, they could limit their child’s access to inherited property, ensuring it is managed properly to meet the child’s specific needs without jeopardizing government assistance. This arrangement provided peace of mind to Michael and Laura, knowing their child would be well taken care of.