Do I Need a Will or Trust?

June 4, 2019

No one wants to talk about estate planning. I get it. It’s not an easy topic and forces you to make tough decisions about how to divide assets and who will care for your children. However, having no plan can result in default decisions that don’t reflect your wishes or delays in the distribution of assets to your heirs.

When people are finally ready to tackle their estate planning – sometimes out of necessity – I’m often asked, “Do I need a will or a trust?” And in true lawyer fashion, my answer is, “It depends.” Furthermore, other estate planning structures might be a better fit for your family.

There are three core questions that determine your ideal estate planning vehicle:

  1. Are you or your spouse concerned about needing long-term health care?
  2. Do you wish to avoid probate?
  3. How do you want to control your assets?

If you’re not concerned about long-term care – either because asset protection is not a priority or you have a long-term care insurance policy – a will or estate planning trust is usually best. But what’s the difference?

A will is simply a piece of paper with no legal effect until accepted by the court. That process – of confirming the validity of your death, your heirs, your property and your legal documents – is called probate. Even a simple probate can be a six-to-nine-month, court-supervised process that usually costs between $2,500 and $3,500. If there are problems during probate, the time and expense can escalate. Although the preparation of a will is about $1,000 less than a trust, it ends up costing more once you go through probate. However, if you don’t mind the probate process, you and your spouse each need the following critical documents: a will, financial power of attorney, health care power of attorney and an advance directive for health care (also known as a “living will”). I think it’s important to incorporate a HIPAA release into every health care power of attorney to ensure vital health care information can be released to your designated loved ones regardless of where you receive care. The HIPAA release people typically sign is facility-specific and does not transfer across hospitals, physicians or other medical providers.

An estate planning trust – or “revocable trust” – allows you to avoid probate and affords more privacy by keeping your total assets out of public records. The trustor (sometimes called a “settlor” or “grantor”) creates the trust to hold his or her assets. Typically, they also serve as the manager – or “trustee” – of the trust. The trustor is able to change its contents or amend beneficiaries and trustees at any time. Trusts can be created by single individuals or married couples. If you’re concerned about the time and expense of probate and would like to avoid it, an estate planning trust is usually the best option. Critical documents include an estate planning trust, a memorandum of trust, pour-over will, financial power of attorney, health care power of attorney with included HIPAA release and an advance directive for health care. This typically costs between $2,500 and $3,500, but you’ll avoid the additional time and expense of probate.

Similar to long-term care planning, estate planning can be complex and is highly customized to your individual circumstances. It’s often best to have your estate planning attorney and financial advisor to collaborate on the structure that’s best to support your values and long-term goals.

 

Blog by Craig Riffel, General Counsel.

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