Do I Need a Will or Living Trust?
This is one of the most common questions that elderly clients ask their attorneys. Although the details can become complicated, you should be able to answer the basic question by the end of this article.
A will is a basic legal document that allows you to state whom you would like to receive your property when you die. A trust accomplishes the same goal. The primary difference between the two is how your assets are transferred.
With a will, when you pass away, the will is filed in court and a probate judge is appointed to oversee the distribution of your estate. Typically it is necessary for your executor to hire an attorney to represent your estate. The law requires your executor to notify all of your heirs of the process and provide detailed information about your debts and assets. The judge then ensures that your debts are paid, and the remainder is distributed according to your will. The process can take up to a year. If you have a large estate, some estate taxes may be owed.
With a trust agreement, you retitle your assets in the name of the trust while you are still alive. For example, if your house is owned by John Doe, you would retitle it to “The John Doe Trust Dated 6/10/08.” During your life, you remain the “trustee” and make all decisions regarding the property, just like if you owned it yourself. At your death, however, the trust assets automatically transfer to your designated beneficiary. Because your assets continue to be owned by the “John Doe Trust Dated 6/10/08” there is no need for your estate to go through probate. It is still necessary for your trustee to pay your debts. Just like a will, if your estate is larger, it will be subject to estate taxes.
In most cases, a trust is preferable to a will. The trust will usually save money for your beneficiaries because it is not necessary for them to go through the probate process. The trust will allow the transfer to occur more quickly. Unlike probate, the trust agreement is also completely private.
Why Doesn’t Everybody Use a Trust?
The down side to a trust agreement is that it costs more to set up. For a small estate a simple will can often be prepared by a lawyer for $500-$1000. A trust agreement is typically more complex to prepare. There is also some cost involved in retitling your assets to the name of the trust. This work is done on an hourly basis by most lawyers and can cost several thousand dollars. The cost can be greater if you have a large estate.
So who should consider a trust agreement? If your total estate is less than $100,000 and you do not own real estate, it will probably not be necessary to probate your estate, and a simple will is probably the best bet. If you estate is between $100,000 and $300,000 or includes real estate, a trust agreement begins to make more sense. Beyond $300,000 a trust agreement is almost always the best bet.
Of course, these are only guidelines. There are specific situations where one or the other might be preferable. It is wise to consult with an attorney to decide on the best option for you. Fortunately, many attorneys will agree to a free initial consultation to discuss the options.