If you’re considering doing your estate planning, you might have a big question looming in your mind: what’s the difference between a will and a trust, and which do I need?
Understanding estate planning law in Texas isn’t rocket science, but with all the jargon and details, it can seem a bit overwhelming. We’ll help explain differences between wills and trusts, as well as what situations might be most helpful for either. Of course, the best person to help you decide what’s best for you is a qualified estate planning lawyer, but we can at least give you a framework to help you ask the right questions.
What Is A Will?
We’ve all seen TV shows where a character dies and someone pulls out a crusty old scroll from a good hiding place, with the words “Last Will and Testament” scrawled on it. But what is a will really? What does it do, and why do you need one?
“Think of a will as a document where you are leaving a set of instructions,” says Melissa Stone Myers, a Texas estate planning expert and Texas Legal network attorney. “You’re saying, at the time of my death, I want these people to receive these assets in this way, and also who will be the guardian of any minor children that you have.”
Part of a will is naming an executor, who is the person who’s charged with carrying out your instructions. Often, this is a spouse, adult child or trusted family member or friend.
A will only takes effect when you pass away. Until then, it’s just a paper sitting in a drawer, just in case. A will needs to be updated every five years or sooner if you’ve had a major life event, like marriage, divorce, a new child or a new home.
One reason people opt for a trust over a will is to avoid the process of probate. But in Texas, that’s not as big of an issue, since the Texas Probate court system isn’t as complicated or difficult to maneuver as other states are.
“If you have a valid will, and there is no contest, probate in Texas is no more painful then renewing your driver’s license.” says Steve Gonzales, estate planning attorney with Cirkiel and Associates and Texas Legal network attorney.
A will is often less expensive up front, but there are costs down the road, such as paying a lawyer for the probate process, which is usually done out of the estate’s coffers.
For those with minor children, it’s possible to create a trust inside of a will that appoints an adult to manage their inheritance until they are older and hopefully mature enough to handle money.
In summary, a will can:
- distribute your assets.
- declare who will be in charge of distributing your assets.
- declare a guardian for your minor children.
A will does not:
- avoid probate court, although a good will can make probate relatively simple.
- cover your medical or legal powers of attorney, which decides who would make decisions if you were incapacitated.
- keep your affairs private. Wills are public documents.
What is a Trust?
A trust, more formally known as a revocable living trust, is a legal entity set up to control your assets. To create a trust, you first set it up, and then take all of your assets – your house, your car, your property, your accounts – and re-title them in the name of the trust.
“A trust is like an empty – you’ve gotta fill it up for it to be worth something,” says Steve Gonzales, estate planning attorney with Cirkiel and Associates and Texas Legal network attorney.
While a will only takes effect once you die, a trust is set up while you’re alive. You maintain control of the trust and all of its assets until you pass away.
In addition to creating the trust, you name trustees – people who are in charge of the assets in the trust – and a beneficiaries – people who will receive the trust’s assets. Sometimes, the trustee and beneficiary are the same person. In other situations, you can set up the trust to be managed for your beneficiaries by a separate trustee.
Another difference between a will and a trust is how much they cost and when the expenses occur. A living trust is generally much more expensive than a will, at least in the short term.
“With a living trust, you’re paying everything up front. With a will, you’re pushing off all the expensive of probate until after you’re gone,” says Gonzales.
A trust is more expensive to put together up front, which may be one reason why many lawyers promote them. Instead of paying for probate, you pay to have the trust set up and all the assets put in the trust’s name.
One benefit of a trust is that it generally includes your legal power of attorney. Most trusts are set up so that the power transfers upon death or if a person is incapacitated, making a separate power of attorney unnecessary. However, if you forget to put an asset within the trust, the trustee has no power over that asset.
A trust can be a good choice if you want to make sure your assets pass in a specific way. For instance, Gonzales recalls a client who wanted to make sure his kids got his assets, not a second husband.
“He said to me, “If I die, and my wife is still young and attractive, and she remarries, I don’t want that SOB to get my kids inheritance,” related Gonzales.
But what that client and others who create a trust might not anticipate is how circumstances may change. A trust is “revocable” or able to be changed during your lifetime. But after you pass away, it’s a contract and can’t be altered, leaving your beneficiaries without any flexibility.
“Say mom is elderly, and she wants to dissolve the trust so she can use that money to go into a nursing home. But her kids say, ‘Why would we want to dissolve this trust so that the nursing home could get all of our inheritance?'” says Gonzales. “The wife is stuck, unless her children agree.”
Another hazard of trusts is their need for maintenance. Buy a new car? Move to a new house? Make sure you remember to update your trust and re-title those assets in the name of the trust. Otherwise, they won’t transfer through the trust, and your family will have to go through probate anyway.
In general, Gonzales says he tries to steer his clients away from trusts unless they’re absolutely necessary because of their inherent complexity and unanticipated circumstances.
“A trust requires a lot of maintenance and upkeep,” says Gonzales.
To summarize, a trust can:
- ensure exactly how your assets transfer and who has control over them.
- avoid the probate process.
- includes legal power of attorney.
- pay your legal expenses up front, avoiding later costs.
- keep your affairs private, as trusts are not on file publicly.
A trust does not:
- specify a legal guardian for your minor children.
- have any flexibility after you die.
- include any assets that you accidentally leave out or forget to have re-titled.
- cover your medical power of attorney.
Which One Is Right For Me?
Every person’s situation is unique, so the best person to help you decide what kind of estate planning documents are best for you is a qualified estate planning attorney. Does meeting with an attorney sound expensive? It doesn’t have to be.
Although a typical will package costs $1,000 to $1,200, and a trust can run $2,500, a legal insurance plan like Texas Legal can save Texans hundreds or even thousands on their estate planning costs. With plans starting at $10 a month, you can get a will or trust, powers of attorney, living will and any estate planning documents you need, created by a qualified estate planning attorney where you live. No hidden fees or deductibles. Just peace of mind that your affairs are settled without stressing your bank account.
Whether you want to create a will or a trust, don’t wait when it comes to estate planning. Get your affairs in order today and know that the future is taken care of, no matter what happens.