Do I Need a Trust or a Will?
It’s advisable for everyone to have a Last Will and Testament (referred to herein as a “Will”). Most people are familiar with Wills and know that they should have them. Something that is a little more foreign is the concept of a Trust. For purposes of this informational blog, I’m going to refer to what we call a revocable living trust. But how do you know if you need a Trust, rather than just a Will?
For starters, this is a personal decision, which you, of course, have the authority to decide. However, these are some of the factors that I would consider in advising someone whether a Trust is a good option for them:
1. Avoiding Probate. If you want to avoid Probate, then you may need a Trust. A Will, in most cases, must go through Probate court to pass the assets on to the surviving spouse or heirs. If you don’t have a lot of probate assets, however, this is less important. For instance, maybe your real property is set up to transfer to your heirs through a Transfer on Death Affidavit, taking into consideration all tax consequences of that. If you have life insurance policies, those can pass to the beneficiaries directly. However, if your beneficiaries are minors, you should set up a trust for your child and name the trust as the beneficiary, or set up a Uniform Transfers to Minors Act account – otherwise, a Guardian will have to be appointed, through Probate court.
- Other assets can pass outside of probate court if you make proper designations, such as filling out a Transfer on Death affidavit for your vehicle titles and holding bank accounts in joint ownership. Those avenues only work though, if you clearly identify who you want to hold title to that account or title. If there are multiple people that you want to leave property to, or you want to make sure items are sold and then distributed equally to beneficiaries, a Trust is the way to go.
- Why would you want to avoid Probate? Well, a Trust provides better privacy – as you don’t have to file with the Probate Court inventory or any other filings unless the Trust is challenged; in a Probate Court action, almost everything filed becomes a public record, and reduced costs (probate costs obtain a certain percentage of the estate, plus there are court filing costs and sometimes appraisal costs). A Trust may cost more upfront than a Will but is often less expensive to administer than a Will. A Trustee may receive reasonable compensation for their efforts, but you can set those out in the Trust.
2. Amount of Property. If you own real property and have some investments, or important assets such as a farm (although there are other options for farms, separate from a Trust), and quite a few other accounts and personal property, a Trust may be of more benefit to you than to a person who doesn’t own any real property and may have only a vehicle, a bank account or two, and some personal items. Further, if you have property in multiple states, setting up a Trust and placing those assets into it save your estate from having to file for ancillary administration in multiple states, which can be a headache. I don’t have a specific amount in mind that I would recommend obtaining a Trust, as sometimes the other factors, such as avoiding probate, make so that even the owner of a small estate would be wise to set up a trust, but it is a factor to consider.
3. Complexity of your wishes. If you want to leave everything to two children, equally, and you don’t have many assets, it’s a little less important to have a Trust versus the family who may have 27 heirs that they want to leave things to, with specific distributions for various family members. If there’s a possibility of leaving money to minors, a Trust may be helpful, as well. There are ways to account for minors in a Will, also, and you may direct that a Trust is set up for minors in a Will but having the desire to give money to heirs at certain times in their life, rather than all at once, is more conducive in a Trust than in a Will.
These are what I would consider some of the most important factors in setting up a Trust. Every person’s life planning needs are different, so speak with an attorney if you have any questions or would like more information on setting up a Trust.
The attorneys at Eques Inc would be happy to speak with you if you would like more information about setting up a Last Will and Testament or a Trust, or if you would like to explore other options for your estate planning.