This is a question estate planning attorneys hear almost every day. The answer to this question is pretty typical of lawyers: “It depends.”
What’s the Difference Between a Will and a Trust?
Both are legal documents that let people know how you want your assets handled in the event of your death. There are some significant differences, though. Here are a few:
- TIME DELAY UNTIL BENEFICIARIES CAN CLAIM THEIR INHERITANCES: A Will must be probated after your death. This means it must go through the court system so a judge can verify its authenticity and adherence to the law’s requirements in order to be considered valid. This takes 4 months to a year or more, assuming no one challenges the Will; if someone does, it can create delays of years. Beneficiaries cannot be paid their inheritances until the court deems the Will valid, any Will contests are ruled upon, and the executor has paid off all of the debts of the estate. Contrarily, there is no time delay associated with a Trust because Trusts do not go through the courts or the probate process. All of the assets are in the Trust (assuming the decedent properly moved the assets into the Trust during his or her lifetime), and are ready to be managed by the Successor Trustee (the person designated in the Trust to take over for the Decedent, assuming he or she was acting as Trustee prior to death.) If the decedent wasn’t acting as a Trustee before death, then nothing changes, other than the Trustee now follows the instructions in the Trust document about how to distribute the assets to the beneficiaries.
- LESSENING OF THE ESTATE’S TOTAL VALUE: In the time it takes for a Will to be probated, certain assets like real property need to be maintained. The costs associated with that maintenance come out of the decedent’s estate. This means there will be less money available to the heirs. In a Trust, there is little to no time delay from the date of death until when the Trustee can begin settling the estate.
- OUT OF STATE PROPERTY CAN DOUBLE YOUR COSTS: If you own property out of state and only have a Will, your executor must have your Will probated in that state as well as the state of your residence. This increases costs because the executor will likely have to hire an attorney in that state as well as the home state and have to pay court costs and filing fees in both states. A properly drafted Tennessee Trust can help you avoid these out of state costs and delays.
- ATTORNEY FEES: A probate judge will have to verify the Will is legally sound. There are court costs associated with this process, anywhere from a few hundred dollars to over a thousand dollars. Also, an attorney will likely be involved in helping the executor of the Will; in some counties it’s required to have an attorney as a representative, and the attorney’s fees will be paid out of the estate of the person who died. A Trust costs more up front in legal fees because it is a more complicated document that takes more time, expertise, and effort to prepare, but it could save a significant amount of money in the long run, depending on the size and complexity of your financial asset mix.
- PRIVACY: The Will, because it is part of the legal Probate process, becomes a public record. Anyone can pull the court record and get a copy of your Will, which will include a list of all of your assets and beneficiaries. There are nefarious people out in the world who will get this information from the court records and prey on the beneficiaries who they learn will soon be getting an inheritance. A Trust is never filed with the court unless it becomes part of litigation somewhere else, and therefore keeps the details of your estate and the identities of your beneficiaries private. Only the people with access to your Trust will know what you have for assets and who your beneficiaries are. These people will be anyone you shared it with, the attorney who drafted it, the Trustees, Successor Trustees, and eventually the beneficiaries.
- INVALIDATION UPON LIFE CHANGES: A change of life can invalidate a Will, whereas these same changes of life will not invalidate a Trust. For example, a remarriage or birth of a child can revoke an existing will automatically, and you would never know without an attorney to inform you (an attorney who was made aware of your life change.) If you died without creating a new Will, you would die “intestate”, which means all of your assets would pass to beneficiaries according to the law, and not necessarily how you would want them to. A Trust is a document that becomes a part of your life immediately, rather than after your death. You will move many of your assets into the Trust while you are alive, so when you pass away, there is no need to re-title the assets or have them go through the probate court before being passed on to the beneficiaries. Both a Trust document and a Will should be updated regularly so they include all of your assets and remain valid, but a properly drafted Trust document is less likely to become outdated and create an intestate situation than a Will.
- CONTROL: You can try to direct how your assets will be distributed via a Will, but some of those decisions can be invalidated by a probate judge who is following the law. A properly designed Trust document can ensure that certain people will get the assets you want them to have upon your death and that other people will not, regardless of what the default law says. Trusts come in many “flavors” and a good Estate Planning Attorney in Tennessee (like Leigh Cowden, Estate Planning & Business Law Attorney) can help you create the Trust that makes the most sense for your situation.
- COSTS: A Will is less expensive to draft than a Trust document because it is usually quite simple to list assets and state which beneficiaries get which assets. Because it is a simpler document, it does not take as much of a lawyer’s time to draft, and is therefore less costly up front. A Trust takes more into consideration and is meant to serve you while you are alive and not just after your death. It can protect your assets from creditors (depending on the type of Trust), lower your estate taxes, and allow you to pass assets on with little to no tax consequences. Because of its complexity, a Trust takes more time and expertise to complete and will therefore incur larger fees.
How Do I Know If I Need a Trust?
People with very small estates, worth less than $50,000 without any real property or any valuable assets can probably manage their estates with a simple Will. Similarly, people who have titled all of their assets jointly with their beneficiaries as Joint Tenants, likely can do with a simple Will because they won’t have any assets that need to go through Probate. However, if you identify with anything on this list, you probably would benefit from one or more types of Trusts.
- You own property either here and/or in another state
- You have assets exceeding $50,000
- You have a family situation that necessitates an uneven distribution of your assets
- You would like to keep certain family members from inheriting any of your estate
- You have inherited some money and want to ensure it transfers to specific beneficiaries upon your death
- You or your spouse have children from another marriage who might need to inherit differently than how the intestate laws provide
- You own a business and need to ensure it continues or is sold for top dollar after your death
- You want to protect your assets from creditors
- You have a special needs or disabled child or spouse
- You want to ensure specific charities get some of your assets after death
- You want to ensure your beneficiaries get their inheritances without delays
- You want to control who gets what assets from your estate and in what amounts without respect to what the law says
- You want to save your family or friends from having to manage your estate through the court system
At the Law Offices of Leigh Cowden PLLC, we sit down with each client and create an estate plan that makes sense to them and takes into consideration the benefits and limitations of the current laws. If you’d like to speak with an attorney about your options and what might be best for you, we invite you to fill out our INTAKE FORM. Once it’s received, we can schedule an initial discovery call of 15 minutes and get some of your basic questions answered. If you decide to hire us, we can get your estate plan put together in a fairly short period of time with minimal hassle.