Is a will or trust the best plan?

Whether an estate is small or large, most people want to have control over its distribution upon death. That goal can be achieved with an estate plan. Trusts and wills are two most common estate planning documents. They are often mentioned together as “trusts and wills,” but how do they differ and which one may be best suited for one’s estate?

A will states one’s instructions regarding the distribution of their estate upon their death. A trust creates a fiduciary relationship between the grantor, who entrusts the assets transferred to trust to another person, and the trustee, who is charged with transferring the assets to beneficiaries upon the grantor’s death.

Wills and trusts are both tools for distributing property after death, but the method of distribution is different. A will involves a public, often lengthy, and often expensive probate process. Anyone can access probate records, which are open to the public, and the requirement to publish various notices results in a proceeding lasting typically between six to nine months. Furthermore, a simple will cannot manage or restrict inheritances and is not helpful in case of a beneficiary’s disability or incapacity.

A properly drafted and funded trust allows for a relatively speedy distribution to the beneficiaries without court involvement. Additionally, a trust allows for the management of inheritance for a special needs beneficiary and the restriction of inheritance for a financially irresponsible beneficiary. A trust also provides protection for the grantor in the event of disability or incapacity.

When choosing between a will and a trust, the cost-benefit of a living trust is more favorable when real estate is involved, as the cost of probate, as well as the statutory attorney’s fees in a probate proceeding, are based on the value of the estate and real estate naturally causes the estate value to be higher. Compared to the cost of setting up a trust, the savings are significant. However, the cost of a living trust is borne by the individuals setting up the trust while the cost of probate is borne by the estate of a deceased person.

A living trust is also the preferred solution when there is a concern about a minor child, a financially irresponsible adult, or a special needs person receiving a large inheritance. A living trust allows control of the distribution of funds, even over a long period of time and after the death of the grantor.

While there are some obvious disadvantages of probate proceedings, a will might be a sufficient solution for a person with an estate not involving real property and containing mostly non-probate assets that can be passed to beneficiaries by designating them on the accounts such as bank accounts and investment accounts with a “payable on death” designation, retirement accounts like an IRA or 401(k), or life insurance policies. Therefore, when deciding on the appropriate estate plan, it is important to consider whether the estate consists of primarily probate or non-probate property.

It is possible to have a will and a trust. In certain circumstances, it may be a good or necessary solution. It is the lack of either that results in intestacy law being applied by default to one’s estate, which may not provide for the distribution of assets after death as the deceased would have been wanted.

Natalia Vander Laan is a Minden attorney