What Is the Difference Between a Will and a Trust?
Talk with an estate planning law firm like The Taormina Firm to determine the difference between a Will and Trust and to decide which estate planning option is right for you.
When most people think about estate planning, they think about a Last Will and Testament. We have seen countless movies and TV shows where the family estate planning attorney reads the dead relative’s Will aloud to the family, ultimately resulting in chaos and frustration with family members. But while Wills may make for good plot devices in movies, they are not the best option available to families in the real world for estate planning. Especially for young families, Revocable Living Trusts are preferred, if not outright recommended, as the best estate planning vehicle available to them. To better understand why, we need to look at the differences between Wills and Revocable Living Trusts.
A Brief Overview of Both
A Will is a written legal document providing for the disposition of property at one’s death. For a Will to be valid in Missouri, it must be in writing, be signed by the Testator (i.e. the person who creates the Will),and two disinterested witnesses (i.e. people who will not take under the Will) in the presence of the Testator. A Will is the simplest way to provide for one’s estate. But while a Will does a good job with disposing of the Testator’s property after death, it offers few other advantages.
A Revocable Living Trust, on the other hand, provides additional advantages that are not legally allowable through a Will. Depending on your situation, a Revocable Living Trust may be the preferred method of distributing your estate at death. A Revocable Living Trust is called “revocable” because you can amend or revoke it any time before your death. You can even change the beneficiaries or Trustees of the Revocable Living Trust at any time. Upon the creator’s death, however, the Revocable Living Trust becomes irrevocable and cannot be changed.
For more detailed analysis on these topics, please see the following links: Wills, Revocable Living Trusts. Now let’s look at some of the major differences between a Will and a Revocable Living Trust.
- The Probate Process
Probate is the process of validating a Will, ensuring that debts are paid, and distributing your assets. Probate is court sanctioned, meaning a court is responsible for overseeing the distribution of the estate. Probate can be incredibly time-consuming and expensive, and when complete, there may be little left over for the Testator’s heirs. Probate can last anywhere between six months and two years and requires the assistance of attorneys and other professionals to complete correctly. A Will must be probated.
In contrast, a Revocable Living Trust does not need to go through probate. Technically, if your assets have been transferred into the Trust, you do not “own” them. They are now in the care and ownership of the Trustee. When you create a Revocable Living Trust, you will serve as the Trustee of the Trust, so you are essentially transferring your individual ownership to yourself in your capacity as Trustee of your Trust. Weird, right? But because your assets are not owned by you, and instead are owned by the Trustee, they do not have to go through Probate since those assets are technically no longer part of your personal estate. It seems kind of ridiculous, but if you work with an experienced and knowledgeable estate planning attorney, like Vince Taormina of The Taormina Firm, you will hopefully grasp this concept in no time.
- Private or Public
Probate is a very public process. Every Probate action can be found on https://www.courts.mo.gov/casenet/base/welcome.do. Anyone can search for the Probate of your estate. Even more, when Probate begins, notices are placed in public forums such as newspapers and other outlets so that creditors of your estate have the ability to collect debts. This is obviously not preferred as most people wish for their assets to remain private and not subject to public scrutiny.
A Revocable Living Trust, however, is a private way to administer your estate. Very little information must be disclosed from the Trust after death. Instead, your must abide by the terms of the Trust to settle up your estate. The court does not get involved at all, unless, of course, there is a dispute. Because of its limited disclosure requirement, however, there are fewer opportunities for contested matters from creditors or family disputes.
- Through Life and After Death
A Will only comes into effect after the death of the Testator. Wills do not convey present interests in property, and they cannot provide for contingencies. That is why, as an estate planning attorney, Vince Taormina of The Taormina Firm provides in his Will package a Health Care Directive, Health Care Power of Attorney, and Durable Power of Attorney. These estate planning documents help to provide for the Testator in the event of his or her incapacity during life.
Contrast that estate planning approach with a Revocable Living Trust. When you create a Revocable Living Trust, your assets can be distributed throughout your lifetime as well as after your death. It also provides for a number of contingencies which may arise over the course of your life. In the event of your incapacity, the Trustee of your Revocable Living Trust can use Trust assets to provide for your healthcare, personal, and residential needs. You may even stipulate in the Trust that you prefer to reside at home in the event of your incapacity. Moreover, you also have the option to establish a separate trust for your children in the event of your incapacity while you are living.
- Permanent or Flexible
Trusts are flexible arrangements, and you can make amendments to the Trust throughout your lifetime, so long as you are mentally capable of doing so. By itself, a Will has no way to protect your assets. Trusts, however, can. Through a “spendthrift provision,” you can protect your estate from potential creditors of your beneficiaries by requiring those creditors to wait for the beneficiary to receive their inheritance before attempting to pay themselves back. Moreover, Trust asset retain FDIC protection up to $250,000 for each beneficiary, with a total protection cap of $1.25 million. For tax treatment purposes, when you create a Revocable Living Trust, your taxes do not go up and nothing changes in the way that you pay your taxes. The same can be said for the estates of your children. In fact, trust assets are not considered a part of your child’s estate for tax purposes so long as your child is under the age of 18.
- Transferability of Property
Perhaps the biggest difference between a Will and a Revocable Living Trust is the ease with which property is transferred through the use of a Revocable Living Trust. When you dispose of your property through a Will, the property will be subject to Probate, unless much of your property is disposed through Nonprobate Transfers such as a POD or TOD. And if you have young children, and you setup a Testamentary Trust for your young children through the terms of your Will, the assets to be held in that Trust will have to be Probate in order for the Trustee to actually “own” those assets on behalf of your children.
In the Revocable Living Trust scenario, property is easily transferred from your Revocable Living Trust into a separate trust for your children. All that the Successor Trustee to your Trust will have to do is reassign the property into the separate trust for the benefit of your children. While they may want to work with an estate planning attorney like Vince Taormina to accomplish this transfer, it can be done with relative ease as compared to a Will.
Wills and Revocable Living Trusts are powerful and effective tools with regard to estate planning. Tax considerations, costs, and other factors may influence your decision as you weigh each option. Talking with an experienced estate planning attorney, like Vince Taormina of The Taormina Firm, is the best thing you can do when discussing your options. The Taormina Firm, as an estate planning law firm, is more than happy to assist potential clients with choosing the right estate plan for them.
We are dedicated to providing our clients with the best quality service available and believe that each client should understand the consequences of their actions completely. For your free consultation with The Taormina Firm, please give us a call today so that we can help you make the best choice for your estate plan.