Even if you are a person of modest means, you have an estate—so everyone needs an estate plan. The right plan depends on your individual circumstances. For some, a living Trust can be useful. For others, a Will may be all that is needed. What is a Living Trust anyway? And how does it differ from a Last Will and Testament?
What Is a Will?
A Will is a written document that is signed and witnessed that indicates how your property will be distributed at the time of your death. It becomes public record upon its filing. It states who is in charge of overseeing the distribution (called the Executor). It is revocable and subject to amendment at any time during your lifetime. It also allows you to appoint a guardian for your minor children. But distributions made per a Will are usually outright upon closing of the probate. And distributions are not made until the probate is closed, which often causes significant delay of the distribution. Additionally, there may be times when there are special circumstances that warrant that the distributions have certain conditions, or that the money be held or distributed over a period of time or at a certain age. Under these circumstances, a Will cannot always achieve the necessary goals. On top of that probate could end up much more costly than setting up an estate plan. Typical costs of probate are 2-3% (or more) of the value of the assets in the estate. A Will also plans for when you are gone, but does not make provisions for what may happen if you become incapacitated. So typically a Will is now used for a more simple estate or family situation. If you have larger concerns or a larger estate, you may consider a Trust.
What Is a Living Trust?
A Living Trust provides lifetime and after-death financial and property management. If you are serving as your own Trustee, the Trust agreement will provide for a successor upon your death or incapacity. Going through a court proceeding is not required, and therefore your Trust provisions are completely private. Livings Trusts also are used to manage property. If a person is disabled by accident or illness, the Successor Trustee can manage the Trust property. As a result, the expense, publicity, and inconvenience of court-supervised distribution of your estate can be avoided.
If a Trust is properly written and funded, some things that you can do are…
- Avoid the cost and delay of a probate on your assets;
- Plan for the possibility of your own incapacity;
- Control what happens to property after you are gone, and potentially how the assets are used by your heirs;
- Plan for heirs with special needs or inheritances by minors;
- Protect assets from possible divorce or undesirable in-laws;
- Use it for any size estate, including making necessary tax plans for a larger estate; and
- Prevent your financial affairs from becoming a matter of public record;
While a Trust is often appealing, it usually is more expensive to set up than a typical Will because it must be funded after it is set up, and often contains more complicated arrangements. Nevertheless, the cost is still much less than going through a probate proceeding.
Will vs. Living Trust Considerations
There are many positive reasons to establish a Trust, but do not overlook the fact that it will involve more upfront effort and expense. To determine if you should make the extra effort and invest in the expense of a Trust, answer these questions:
Is informal probate an available option? Most states have an expedited or simplified form of probate for estates under a certain dollar threshold ($40,000 in the State of Missouri). If your estate could pass under an expedited form of probate, a Will could be appropriate.
Do you have assets in more than one state? Owning property in multiple states could require more than one probate proceeding.
Do you have minor children? A Trust allows you to establish guardians for your children while they are minors as well as provisions specifying when a child will be entitled to any assets held in Trust, or for what purposes.
Do you have children, grandchildren, or other dependents with special needs? In those instances the access or control those heirs have over their inherited property may need to be limited. You do not want to jeopardize disability or other government benefits. 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.
Do your children get along? Do they live nearby or are they scattered? Do you even want to leave them all the same amounts, or anything at all? Sometimes we have family situations that are complicated, and we need to find ways to set them out in black and white so there is no confusion or conflict at the end of the day. Wills may not be able to address all these “special family circumstances.”
Will your estate be subject to estate taxes? If the value of your estate exceeds the current estate tax threshold, you may wish to consider setting up a Trust with tax planning provisions. The estate tax threshold frequently changes, so be sure to check with the IRS to determine whether or not estate tax is a concern for you.
Do you have issues with a daughter-in-law or a son-in-law? A living Trust could protect inheritances from a potential divorce, or help avoid conflict at the time of distribution.
Are you on your second marriage… or third, or fourth? Blended families often have more complex situations to consider. How do you deal with inheritances for your children versus making arrangements for your spouse? These are oftentimes situations that are properly dealt with only by setting up a Trust.
Do you have long term medical concerns, and concerns about paying for those expenses? Per the Alzheimers Association, more than $5M people are living with Alzheimers in 2017. Alzheimers will cost the US approximately $259B this year alone. And statistics show that 35% of caregivers for people with Alzheimers or dementia report that their health worsened due to care responsibilities. Be sure to discuss how to protect your family and your assets sooner rather than later.
So what is best for you? In many respects, a Trust and a Will accomplish similar objectives. A Trust, however, allows you to realize other objectives that a Will cannot. But those advantages don’t come without a price. Whether or not a living Trust is better for you than a Will depends on whether the additional advantages are worth the cost. When choosing, remember that one size does not fit all. What is right for one person may not be right for everyone. Your estate plan should be prepared in a way that best meets the needs of you and your family.
Either way, EVERYONE needs an estate plan. Dying intestate (with no Will or Trust) will be sure to involve the government. It doesn’t have to be complicated. Stop procrastinating and call to make an appointment to sit down with us for a FREE CONSULTATION to plan your legacy. Protect yourselves, protect your family and give yourself the peace of mind you deserve for years to come.
Thomas Walters Estate Planning builds lasting relationships with our clients based on the highest standards of integrity and professionalism. We help our clients customize plans that meet their unique needs, concerns, and goals. We compassionately assist families after the loss of a loved one. We believe that a well thought out and professionally developed plan will provide peace of mind making transitions for generations stress free and cost efficient.