Will or Trust? Which One is Right for Me?

YOU DON’T KNOW WHAT YOU DON’T KNOW

Everyone has heard of wills and trusts. Most articles written on these topics presume everyone knows the basics of these important documents. But, in reality, most of us don’t know – and with good reason – as they’re rooted in complicated law.

Let’s face it, if you’re not an estate-planning attorney, these concepts tend to remain merely that – concepts. So, if you’re “fuzzy” about wills and trusts, know that you are not alone. There are pros and cons to a will plan and a trust plan. After you learn the basic differences between these two documents and learn the other options and choices available to you, you will understand why a trust is often the better choice for both lifetime mental incapacity planning and the distribution of assets and property after your death.

However, everyone’s circumstances are different. Therefore, it’s very important to analyze your family and financial situation, as well as your goals, so you can make an intelligent decision about what type of estate plan is best for you and your family.

WILLS vs. TRUSTS: PROS AND CONS

Will: A will is a written legal document that is signed and witnessed. A will is considered a “death” document because it only goes into effect at the time of your death.  It’s not a complete estate plan. Some of the pros and cons of a will plan are as follows:

• Applies to Few Assets: A will provides for the distribution of only those assets that are owned by you in your name alone. Therefore, assets that you direct to be distributed to others through beneficiary designations (e.g. life insurance or retirement benefits), or that you own with someone else in joint tenancy, generally don’t pass under your will. A “Small Estate Affidavit” may apply for small estates that don’t include real estate.

• Probate Court Process: A will forces assets owned in your individual name, or payable to your estate, to go through the probate court process, which costs legal fees, court costs, time delays and hassles for your family.

• Appoint Guardians: A will allows you to appoint permanent guardians for your minor children. Another document can appoint temporary guardians.

• Personal Representative: In your will you name an agent (Personal Representative) to settle your estate (payments to creditors and then distributions to beneficiaries).

• Outright Distributions: A will seldom includes protective trusts for beneficiaries because many wills are simple two to four page documents. Although a testamentary trust inside the will is allowed, there are better trust options.

• Creditor Claims: The probate court process in Colorado allows for each creditor’s claim to be cut-off after a period of 4 months.

• Amendable: You may amend all or part of your will or revoke it during your lifetime.

• Legal Fees and Costs: Although a will plan is generally less expensive than a trust plan at the outset, the legal fees and court costs at death can be more expensive than a trust plan in order to settle your estate.

• Conservatorship Court: Wills do not apply to lifetime mental incapacity caused by car accidents, falls, strokes, dementia or other health issues. As a result, if you or your spouse should become mentally incapacitated, then a conservator court action may need to be filed, which costs significant legal fees and hassles for your family.

• Ancillary Documents: A will plan includes important ancillary documents including, but not limited to, a medical durable power of attorney, a general durable power of attorney, a living will (pull-the-plug), and a HIPAA form.

Trust: A revocable living trust is a legal contract signed, witnessed and effective during your lifetime, during any period of mental disability, and after death. You don’t have to be “rich” to need a trust because nearly everyone has a family and assets. Some of the pros and cons of a trust plan are as follows:

• Lifetime Benefits: A trust is a “living” document that has lifetime benefits because it’s in effect during your lifetime, during any time you are mentally incapacitated, and after your death.

• Amend or Change: You can revoke or amend the trust during your lifetime.

• Avoids Probate Court: At death, a probate court action is generally unnecessary if your trust is fully or nearly fully funded with proper titles and beneficiary designations.  This saves your family money, time and hassle.

• Avoids Conservator Court: A trust avoids the possible need for a court-appointed conservator upon mental incapacity.

• Best Distribution of Assets: A trust provides for the distribution of nearly all of your assets in the best way for most families.

• Protective Trusts: This is a big feature inside of a revocable living trust. In a trust, you can provide for your spouse without the chance of disinheriting your children. A trust also can protect inheritances for children and grandchildren from the courts, creditors, spouses, divorce proceedings, and irresponsible spending.

• Trustees:  In a trust, you choose your agent, called a trustee, and one or more successor trustees, to handle your personal and financial affairs upon both your death or mental incapacity. The trustee pays legitimate creditor claims and then distributes assets to your spouse or other heirs either outright or in trust. You make that important choice.

• Management: While either you or your spouse is alive you are in control because a trust allows you or your spouse to manage property that is in the trust – even if one of you becomes incapacitated.  If the trust were a car, then you would have the car keys to control it.

• Guardians: In a trust, you can appoint both temporary and permanent guardians for minor children, in addition to other Children’s Protection Documents.

• Privacy: Because a trust does not have to be filed with a court, your plan is private and confidential.

• Reduce Taxes: A proper tax-planning trust can reduce or eliminate federal estate taxes (if applicable). While the grantors are alive, they continue to file their usual tax returns.  A trust can help avoid capital gains taxes on the sale of certain assets.

• Works in All States: If you own real estate in more than one state, then a trust can avoid ancillary probate.  The trust travels with you if you move.

• Reasonable Cost for What You Get: Although the up-front cost of a trust plan is more expensive than a simple will plan, you get more too! A trust saves money in the end because it generally costs much less upon mental incapacity and/or death and typically provides significantly more value.

• Ancillary Documents: A trust plan includes important ancillary documents including, but not limited to, a medical durable power of attorney, a general durable power of attorney, a living will (pull-the-plug), and a HIPAA form.

THE PROBATE PROCESS: A KEY ELEMENT IN DECIDING BETWEEN A WILL PLAN AND A TRUST PLAN

One key element in deciding between a will plan or a trust plan is understanding the probate court process. The term “probate” – which literally means “proving” – refers to the court process wherein a decedent’s will must be authenticated, outstanding legitimate debts paid, and probate assets transferred to the beneficiaries. The downsides are that probate: (1) takes six (6) months or more; (2) generally involves relatively few assets; (3) forces legal fees and other costs; and (4) is public. In most cases, the main upside of probate is that creditor claims can be cut off. In a trust, your trustee pays known and valid creditor claims. Probate Guaranteed: If you use a will as your primary estate planning tool, and you own property in your individual name (without beneficiary designations), or property is made payable to your estate, then probate generally is guaranteed. Probate Avoided: If you use a trust as your primary estate planning tool, both “lifetime probate” (conservatorship court) and “death probate” are avoided – saving your family time, stress, hassle and money.

THE BOTTOM LINE ON WILLS vs. TRUSTS

Because everyone’s situation is different, it’s important to analyze every aspect of your situation – and what the future may hold – so that you can determine what’s right for you and whether probate avoidance, incapacity planning, and trust protections have more value to you and those you love. Many people receive the greatest overall benefit from having a revocable living trust plan.

ACT NOW TO AVOID LEAVING YOUR FAMILY WITH AN EXPENSIVE MESS

Without an estate plan in place, you and your family are left substantially unprotected and you can leave your family with an expensive mess. It’s important to work closely with your estate-planning attorney to make certain that all of your assets are distributed according to your wishes – and done so with the least amount of cost, time delay and hassle. Call our office now (303-775-1112) to schedule your Estate Planning Analysis Consultation. We can help you determine whether a will plan or a trust plan makes the most sense for your situation. You should not make these decisions alone.

SCHEDULE YOUR ESTATE PLANNING ANALYSIS CONSULTATION

To begin the process, you should consider scheduling an “Estate Planning Analysis Consultation” with Carlson Law Office, LLC.

What you don’t know can cost you, your spouse and your heirs money, aggravation and time. An “Estate Planning Analysis Consultation” with an experienced and knowledgeable attorney has real value for you because you directly benefit by learning the answers to 11 vital questions:

• What is “estate planning” and why is it important to me?
• What are the pros and cons of “Will Plans” vs. “Trust Plans”?
• What are my options and choices for estate plans?
• What type of documents do I need for the protection of my minor or adult children?
• Which type of plan appears to be the right one to protect my family based on my family’s finances, assets, and family members?
• What is the fixed fee cost for my estate planning?
• What are the problems with probate court, conservatorship court, joint tenancy ownership of property, and powers of attorney?
• What are the 3 categories of “buckets” for holding my money/assets?
• What are the consequences of holding money/assets in each “bucket” for lifetime mental disability planning and death planning?
• What are the 4 ways to hold title to assets and the consequences of each way?
• What is “funding” and why is it important to my family and me?

At the consultation, you will learn enough information so that you can make intelligent decisions about your will plan or trust plan.