A Chart That Explains How Wills And Trusts Are Alike And Different
Many people new to estate planning ask: Do I need a will or a trust? In some cases, you may only need a will. In other cases, a will and trust will offer the protection and benefits that better serve your goals.
Here’s a quick look at how these planning tools are alike and how they are different.
|Will||Revocable Living Trust|
|What is it? A will is a straightforward tool that directs to whom one would like to leave their assets upon death. A will also names a personal representative, or PR (aka executor) who will do the administrative work of winding-up the deceased person’s affairs through a court process called probate.||What is it? A trust is an alternative tool, which, like a will, directs to whom one would like to leave their assets upon death. A trust names a trustee, who plays an equivalent role to that of the will’s PR in winding-up the deceased person’s affairs through a private administrative process, which does not involve a probate court process.|
|Probate is required. In Colorado, if someone dies as the sole owner of at least $66,000 in assets at the time of their death, a probate court case will be required to permit the transfer of those assets to the beneficiaries named in the will. A separate probate case would be required in each state that one owns real estate upon their death. Life insurance policies and retirement accounts that name beneficiaries do not require probate to transfer to beneficiaries.||Avoids probate. Some people strongly prefer the use of a trust because trusts avoid probate court if used in accordance with our simple instructions. For those with real estate in multiple states, many prefer to use a trust because this eliminates the need for probate in each state where real estate is owned.|
|Distributions take longer. The PR must wait to distribute the assets until the court permits distributions to be made. Typically, it takes about six months until beneficiaries can receive an inheritance.||Distributions happen faster. Distributions can be made more quickly with a trust. Upon death, without delay, the trustee may distribute inheritances per the instructions of the trust. This efficiency can be particularly meaningful to those with dependents who may rely on one’s financial resources.|
|Higher cost of administration upon death. Various court, attorneys and other misc. fees can be accrued during the probate process. These fees can add up to several thousand dollars.||Lower cost of administration upon death. The cost of administering a trust tends to be significantly lower than the cost of probating a will because attorneys are rarely needed.|
|Lower maintenance during life. After one signs their will, it can be put in a safe place and checked off the to-do list. We suggest that one reviews his or her will every few years and also upon major life changes.||Slightly higher maintenance during life. It is essential that a trust be “funded” during one’s lifetime in order to avoid probate. This may necessitate updating beneficiary designations on retirement accounts, life insurance policies, bank accounts and other investment accounts. It may also be advisable to transfer ownership of real estate to the trust. We can assist with such real estate transfer paperwork. If you choose to have a trust prepared, we will also give you written instructions of how we would suggest you “fund” your trust.|
|Not helpful during life’s emergencies. A will becomes effective upon one’s death. During one’s lifetime, a general durable (financial) power of attorney can be utilized to enable access to one’s assets during a variety of emergency situations.||Very helpful during life’s emergencies. During life’s emergencies, financial institutions are generally more comfortable dealing with a trustee than an agent named in a power of attorney.|
|Income tax neutral. A will has no effect on one’s income taxes.||Income tax neutral. A trust generally has no effect on one’s income taxes. Although it is technically an entity, a trust is ignored for income tax purposes and is not treated as a separate taxable entity; thus it is not required to file a separate income tax return. As a result, income, expenses and deductions associated with a trust are reported on one’s individual return.|
|Lower cost. A will-based estate plan tends to be a lower-cost tool to create.||Higher-cost. Trusts are more costly to create.|
|Privacy. Upon death, a will becomes public record at the courthouse. This means that anyone curious can easily learn who is scheduled to inherit the assets of someone once they have died.||Privacy. Colorado trusts do not need to be recorded with the court or government, so one’s trust can be insulated from public view, sheltered from scrutiny of heirs of one’s estate and concealed from other beneficiaries of the trust. This privacy interest may be useful for those who want to divide assets disproportionately or if there are individuals who you would prefer not to know the details of who is to inherit what.|
|Flexibility. Both tools can be written to achieve a variety of goals and can be amended later in life if circumstances change.|
|Specifications for minor children. For parents leaving assets to minor children, both tools can specify that assets left to children are to be used for the children’s appropriate cost of living expenses, health and education expenses until they reach adulthood; then, we can specify the age of adulthood (typically 25 years old, at the earliest) when any remaining assets would be transferred into the children’s personal ownership.|
|Amendability. Both tools can be amended later in life if circumstances change.|
|Estate taxes. Whether one dies with a will or a trust, the tax implications are the same. Most Americans are not charged a death tax (or estate tax) upon death. For Americans that die in 2018, taxes will not be assessed for those with total assets under $11,200,000 for a single person (or $22,400,000 for a married couple).|
Have Other Questions About These Or Other Estate Planning Documents?
We are here to help! Call our office and speak with our team about what you need. We are happy to answer your will, trust and other estate planning questions in a free phone call. Call 303-848-8352 or send us an email with your question, and we will get back to you. Our office serves clients throughout the greater Denver area.