A will and a trust are recommended to ensure zero gaps in an estate plan. Knowing that assets are divided according to one’s personal wishes delivers peace of mind. While both a will and a trust share overlapping characteristics, some notable differences exist.
What is a will?
The simplest way to distribute property after death is to create a will. This legal document provides instructions on how to allocate assets to beneficiaries. Individuals can use any of various online software programs to create a will for as little as $0 to $199.
The person preparing the will designates how their assets are to be distributed after they pass. The document can be used to name guardians for children or pets, for instance. People create wills to specify final arrangements, too. The will goes into effect upon the individual’s death.
What is a trust?
A trust is more complex in comparison to a will. This document allows the individual to transfer ownership of property and offers them greater control over when and how assets are distributed. An online trust maker can be used to create a trust for a minimum cost of $139.
Trusts come in various forms and types. Unlike a will, the trust is managed by a third party. Also different from the will is that the trust is effective immediately once signed and funded. The trust is distributed to beneficiaries at the time specified by the creator of the trust.
What are the negatives to a trust versus a will?
A will is a better solution for individuals with uncomplicated assets. Preparing a will is also faster and easier than creating and managing a trust. A will is recommended for people who aim to establish an estate plan quickly. Plus, drafting one is more affordable than creating a trust.
The high cost of preparing a trust is a dissuading factor for many individuals. The complexity involved drives up the price significantly: A living trust can cost between $139 and $3,000 to create, while managing the trust has a price ranging from $2,500 to $7,000.
What are three advantages of a trust over a will?
Advantage 1: Significant Assets
A living trust is essentially the hub of the individual’s estate plan. A trust is advised for individuals who hold significant assets, such as several real estate properties or over $200,000 in financial accounts. Trusts can include bank accounts as well as investments, like stocks, bonds, and cryptocurrencies.
Advantage 2: Minimized Probate
One of the biggest benefits of creating a trust is that heirs avoid probate. This court-supervised proceeding that the estate goes through is a result of inadequate estate planning. It can be a potentially costly and time-consuming process depending on how comprehensive the estate plan is.
Advantage 3: Privacy
A third advantage of a trust is that it offers privacy over the individual’s property and assets. The distribution of assets in a trust remains private—unlike in a will where they are public, especially during probate proceedings. Beneficiaries still have access to what they are entitled.
What assets should not be in a trust?
While a trust can help individuals manage their assets, certain asset types shouldn’t be included. Avoid putting retirement accounts into a trust because withdrawals are taxable. If the individual is not at least 59 ½, early withdrawal may require paying additional penalties.
Life insurance policies, especially those with significant policy payouts, also should not be in a trust because they could trigger federal or state-level estate taxes. Rather, it’s a wiser financial move to name a person as the beneficiary to the life insurance policy.
Health savings accounts are another asset that should not be in a trust. Due to the fact that HSAs are individual accounts, they cannot be transferred to trusts with joint ownership. The alternative is to name the living trust as a beneficiary of the HSA.
Specific accounts, like the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), can’t be transferred into a living trust due to differences in ownership (the child is made the owner of the account, and the custodian is left to manage the funds).
Why do people choose wills instead of trusts?
Choosing a will over a trust depends on an individual’s goals and requirements. Wills are commonly created due to their affordability, the ease of preparing one, and the fact that the document is usually sufficient for most people’s needs. Wills are far less complex to set up than a trust.
While wills and trusts share a range of similar aspects, they offer unique advantages. Neither should be considered superior to the other, as both offer practical solutions that deliver benefits to protect an individual’s family when it is most crucial.
Why call Allen Gabe Law, PC?
Creating a will or trust is an important part of estate planning and ensures your wishes are executed. It’s not uncommon to have both a will and a trust. When you seek to draft a will, a trust, or both, choose the estate planning lawyers at Allen Gabe Law, PC.
Estate planning affects the future of your family—and our will and trust attorneys take on the responsibility of carefully assessing your financial situation and advising you of the best way to move forward. We draft wills and trusts to your exact specifications so that they are legal and binding.
Our lawyers prepare a range of wills: living wills, joint wills, simple wills, and deathbed wills. If you are unsure, we help you decide the right type of will for your situation. We also specialize in trusts, such as revocable living trusts, irrevocable trusts, special needs trusts, and children’s trusts.
Simplify the preparation of the necessary estate planning documents by working with the attorneys at Allen Gabe Law, PC. Enjoy peace of mind knowing your wishes will be carried out in a well-drafted will or trust. Call our Schaumburg, Illinois, office to speak with our qualified estate planning lawyers.
