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Estate Planning Education Law

 

 

Will v. Trust

By: Ernest H. Tuttle, IV


Many people ask the difference between a Will and a Trust when considering estate planning. To begin, we should define each legal document before getting into the differences.


A Will names individuals or charitable organizations who will receive the assets owned by you in your name upon death. The person responsible for managing your estate through the Court process is named the Executor. A Will is also the legal document where guardians are nominated for minor children.


A trust is a legal entity that is created to hold your assets for your benefit during your lifetime and transferred to your beneficiaries upon death, without court involvement. The person responsible for managing the assets within the trust is called the “trustee”. A revocable trust can be changed at any time as long as you are competent to make the changes.


By definition these two legal documents serve different purposes, but practically some may consider them both a vehicle to transfer assets to loved ones or charities upon death. The major difference is that a Will requires court involvement for assets valued at $150,000 or greater and a trust is designed to avoid court involvement entirely. Involving the courts, known as “Probate”, is very costly and time consuming. At a minimum, the probate process can take 6-8 months, but the more complicated matters can easily take several years to finalize. If you have a gross value of assets over $150,000, a Will is a ticket to go to probate court.


Another disadvantage of administering a Will through probate is that the Will and value of the assets are public record within the Court’s files. Also, lawyer’s fees and executor’s commissions are based on a statutory fee schedule; a probate may cost more than the management and distribution of the same estate using a revocable trust. Accordingly, those that have assets with a gross value over $150,000 should consider a living trust to avoid the disadvantages of simply drafting a Will.

How do you determine the value of assets for the threshold of $150,000 for Probate?  Typically, we use the fair market value.  For example, let's say you own a home with a mortgage of $300,000 but the home would sell for $350,000.  The Probate Court's value this asset as a $350,000 asset even though there is only $50,000 equity. This is important since the fees are set based on the $350,000 value rather than the equity value.


Next, people may wonder why their estate plan has a Will and a trust? The reason is based on total protection of your estate rather than reality. I counsel my clients to focus and only use their living trusts, but their Will is provided as a back-up document only. The Will affects any assets that are titled in your name at death and are not titled within the trust. Another reason to have a Will in conjunction with a trust is for families with minor children. The Will is the legal document to nominate a guardian. However, assets held in a trust for minor children would be managed by the trustee of the trust, but the guardian would have legal rights to care for the child.


Estate Planning focuses on the orderly management and disposition of an individual’s valuable assets during lifetime as well as upon death or disability, with consideration of the impact of such wealth transfer on future generations. If you or your loved ones have any questions about estate planning, please call our office or contact us through our website to schedule an appointment.


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“After my husband passed, I didn’t know what to do or where to turn. After speaking to Mr. Tuttle, he eased my fears and provided me with the information that I needed to update my estate plan. He was very thorough and presented the issues in an understandable way that made the process actually positive.”

Kim S.