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Why Do I Need A Trust If I Already Have A Will?

by | May 9, 2024 | Estate Planning

Estate planning is an important consideration that everyone could benefit from. For those with an existing estate plan, it should be revisited every several years or sooner if there is a significant life event such as a death, divorce, or marriage in the family, to name just a few. The first question I get from most of my clients is, “What’s the difference between a trust and a will?” This article answers that question and will leave you with a better understanding of basic estate planning so that you can make an informed decision as to what is best for you and your family.

First, it’s important to understand what a will and a trust are. A will is simply a set of instructions for a probate court to follow after a testator’s death. When a testator dies, the executor files the will with the probate court, and the probate court gives the named executor authority to transfer the testator’s assets to the named beneficiaries in their will. A misconception many clients have is that their will avoids probate. This is not the case. If a will is presented to a financial institution, a bank, for example, the bank will tell whoever is presenting the will that they need a court order before transferring any assets. This comes as a surprise to many people who think a will is sufficient to avoid probate.

On the other hand, a trust is a legal document that can hold assets. The trust can be named as the beneficiary of assets on the grantor’s death. This is a vehicle used to avoid the probate process altogether. Note that your beneficiaries will only avoid probate if the trust is funded by the grantor, the person who created the trust, during their lifetime or upon their death.

The obvious difference between a will and a trust is that assets titled to a trust avoid the probate process. There is no need for the family to go to court to obtain access to the grantor’s assets, which also means that the family can have access to trust assets immediately. There is no waiting period for months to access assets, and there is no court intervention.

Now that you understand the main differences between a will and a trust, you might wonder which is right for you and when we recommend a trust estate plan versus a will estate plan. The benefits of a will estate plan are its simplicity. This is the simplest type of estate plan and requires no more than a few meetings with your attorney to set this up. We typically recommend wills for the person who has very minimal assets and wants to leave everything to responsible adult beneficiaries outright without any restrictions or creditor protections (more on this later). Since the will does not avoid probate, the testator has to be okay with their family spending time going through the probate process and spending legal fees, usually incurred hourly, to get ahold of their assets. We rarely see families who are not frustrated by the probate process. Months spent working with the probate court and costly attorneys’ fees are the last things families want to deal with when grieving a loved one. For this reason, I rarely recommend a will estate plan. However, it is not never. There are certain families who I believe do not need a trust and would benefit from a simplified estate planning strategy.

A trust has many benefits and is included in the majority of estate plans I draft. One of the benefits of a trust, as mentioned earlier, is probate avoidance. Grantors of a trust can transfer their assets to the trust during their life or upon their death via a transfer on death beneficiary designation and avoid the probate process entirely. This is usually desired, as it gets assets into beneficiaries’ hands quickly. The only attorney fees would be for trust administration, which typically is not much if the trust is funded.

Another benefit of a trust is creditor protection. An attorney can include certain provisions in a trust to shield the assets from creditors after the grantor dies. This does not protect the assets from creditors during the grantor’s lifetime but rather offers protection for the grantor’s beneficiaries. Not all trusts do this, so if this is a goal of yours, it is important to make that clear to your attorney. Creditors can include ex-spouses in the event of a divorce, so if your beneficiaries are at any risk of a divorce, be sure to mention this to your attorney so they can help shield your assets from being split with your beneficiaries’ ex-spouse.

Finally, another key benefit of a trust is ease and flexibility if beneficiaries ever change in the future. This means that if you ever want to add a beneficiary to your estate plan, you can simply modify one provision of the trust that holds or will hold all of your assets. This makes adding and removing beneficiaries or changing the percent of your estate allocable to certain beneficiaries extremely simple.

In conclusion, estate planning is a significant and intricate process that can be simplified with the right tools and guidance. Trusts and wills both have a place in estate planning, and there is no one-size-fits-all solution when preparing an estate plan. It is crucial to share your goals and any concerns you may have with your estate planning attorney. Their expertise and guidance can provide you with the support you need to navigate this process, making you feel more confident and secure in your decisions.

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