What’s the Difference Between a Trust and a Will?

And when should you choose a revocable trust?

By

Deciding between a will and a trust is one of the earliest key decisions you’ll have to make when putting together your estate plan. Generally, a will determines who gets what when you die, and a will goes into effect after you’ve passed. While similar in many ways, a trust has one enormous difference: It goes into effect immediately after you’ve created it—meaning it needs to be actively administered by a trustee.

Trusts also allow your heirs to avoid probate, or the process of doling out the deceased’s assets in a court. “Probate takes in and of itself six months to a year, minimum,” says Lindsey Buchheit, an estate planning attorney in Sergeant Bluff, Iowa. “It can be pretty costly.”

There are many kinds of trusts, but with the current tax exemptions, many of Buchheit’s current clients are setting up revocable trusts. To make a trust function properly, you need to properly name your properties, bank accounts, certificates of deposits and other assets named within one before you pass away. Buchheit says this is an easy process; it’s just a matter of doing it.

Though it may seem contradictory, with a revocable trust, you will still have a will. “That’s very confusing for people,” says Buchheit, noting that the will is called a pour-over will. “The name comes from the fact that if you forget to get something into the trust, that asset is going to get distributed according to the terms of the will; it pours over into the trust.”

While a pour-over will does ensure that your assets eventually get to the trust, it doesn’t simply act as a catch-all for anything you forget to name.

For example, say you’ve got $35,000 in a bank account that you wish to have distributed after your death, but you forgot to mention it in your trust. “That $35,000 will get distributed because of the pour-over will, but it may very likely result in having to open up a probate to get it into the trust,” says Buchheit. “That’s where the titling issue becomes so important. … If there’s no beneficiary listed on the account, and the person dies, [third parties] are going to require that you have documents from the court. And the only way to get that is to open up a probate proceeding.”

Buchheit recommends revocable trusts for anyone looking to avoid probate, as well as those who own more than one piece of real estate. She states that, if you’re a snowbird with properties in multiple states, and you have a will, there will have to be a probate hearing in each state.

One often-overlooked but extremely important aspect of setting up a trust is designating a trustee. “People underestimate the gravity of what it means to be a trustee,” says Buchheit. “I always encourage people to think about who the trustee is going to be, and whether or not they’re capable of administering it.”

In fact, for more complicated trusts, Buchheit recommends going with a corporate trustee over an individual. “Of course, they’re going to charge,” she says. “But even an individual can charge for their services if they so choose. To me, I think it’s worth it. It can save peace in the family.”

If you are looking to set up an estate plan for the first time, or thinking about changing your plan from a will to a trust, reach out an experience estate planning attorney. He or she can guide you through the entire trust process, which Buchheit estimates will cost around $2,000.

Iowa

“Probate takes in and of itself six months to a year, minimum. It can be pretty costly.”

Other Featured Articles

Do I Need an Attorney to Apply for a Trademark?

Potential legal hurdles in the trademark application process

 

Covering Your Care Needs in Maryland

As you age, it’s important to plan for Medicaid and/or long-term care

 

Making the Divorce Process Easier

Splitting up does not mean there needs to be a lengthy court fight

 

See More Legal Issue Articles »

Page Generated: 0.30228900909424 sec