Skip to content

Basic Estate Planning: A Will, a Trust, or Both?

In my last blog, I reviewed easy, affordable options available to start planning your estate, including creating a will. However, there is an additional option that many people don’t think of, the trust.

For some people, a trust can be more useful than a will. For others, a will is better. Some will decide they need both.

Most people assume that creating a trust is a more expensive option, only for the very rich, but this is not necessarily the case.  According to AARP, the fee to set up a trust could be as little as a few hundred dollars (but can run several thousand dollars or more). 

Similar to a will and last will and testament, a trust document details how you want your assets distributed upon your death and how to take care of your minor children financially.  Simply put, a trust appoints a trustee to carry out very specific wishes for your assets.

The major benefit of a trust is that that assets do not have to go through probate court. Probate is proving in court that the will is valid. (To understand more of what this entails, download AIER’s free book, The Executor’s Roadmap.)

There are two different types of trusts: revocable (living) and irrevocable (upon death). The major benefit of a living trust is that it goes into effect before death. This means that you can retain control over your money and property while you’re still alive. (You can even serve as your own trustee and appoint someone else, a successor trustee, to take over after you die.)

With a revocable living trust, the person creating it can later change his or her mind regarding not only the property placed into trust, but also whether to keep it or to end the trust altogether.

With an irrevocable trust it’s exactly as it sounds: It is NOT revocable. Once you put property into it, you cannot retrieve it, as it belongs to the trust. Placing assets into an irrevocable trust may reduce your estate for tax purposes. This is one big potential benefit of an irrevocable trust.

Setting up a trust could potentially save your estate thousands of dollars after you die. While the upfront cost of setting up a will is generally cheaper than setting up a trust, it could cost an estate more money after settlement.

There are also risk factors to consider when using just a will. Provisions in a will do not cover the cost of administering your wishes after your death.  If your will is contested, loved ones may need to hire an attorney, which would then add additional fees. Plus, a will does not offer any possible reduction to the estate tax burden, whereas some trusts may offer that.

However, since a trust does not have to go through probate, your survivors will avoid probate fees.  Your trustee will not have the hassle of going to court or hiring an attorney to settle the estate, and has the immediate right to distribute your property according to the plan described in your trust.

You can be very detailed in your trust and formulate your plan to take care of things like the future care for beloved pets or managing specific needs of an aging parent, a spouse left behind, or a relative with health issues.

These are many reasons why you may want to consider establishing a trust. While a living trust makes sense for some people, wills are sufficient for others. Both have different advantages and disadvantages depending on your situation. Trust and wills are not necessarily mutually exclusive and depending on one’s specific estate planning needs, having both may be appropriate. The chart below can provide some insight on that question.

 

Will Trust
Appoints agents to act after death No Yes
Appoints guardians for dependent children Yes No
Provisions for pets No * Yes
Controls when beneficiaries receive assets No * Yes
Helps assets avoid probate No Yes
Reduces Estate Taxes No Potentially
Typical cost to create $50-$1,500 $300-$5000
* Unless a testamentary of trust is created

 

Click here to sign up for the Daily Economy weekly digest!

 

One Comment Post a comment
  1. Hello,

    Useful Post!!!

    I think planning your estate is something that you should look into almost as soon as you can.

    Great information, this has been on my mind lately. I’m going to call my lawyer and get started.

    Thanks for the share!!

    Keep up the good work.

    All the best

    Like

    January 18, 2017

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: