Wills and Trusts

Wills and trusts are both documents that govern the transition of your assets to your heirs, at or after your death. A will is the classic document used, and what most people think of when they think of estate plans. A trust is a more recent development in the law and allows for a lot more control to be given to you after your death.

Below is a general breakdown of the two types of documents, please don’t use this chart to decide everything, nothing beats an actual conversation with the right attorney.

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Time of Drafting

Both of these documents must be drafted before you are dead or incapacitated, that means the sooner the better. It seems simple, but it becomes confusing for some as the near the end of life because they have delayed planning until one or both spouses are struggling with end-of-life illnesses and they are probably not fully capacitated.

The moral of this story is the sooner, the better.

Probate Proceeding

Only Wills must be administered through the court proceeding known as Probate. This court proceeding does require an attorney’s assistance. It can be a simple process, but if the family or heirs fight then it becomes a long and costly litigation.

Separate Entity Created

A trust is similar to a business, in that it creates a separate entity in the eyes of the government. This means that the trust must obtain its own Taxpayer Identification Number, pay taxes and manage affairs. The trustee must create and maintain a separate bank account and records.

Management During Life

Because a trust creates a separate entity, it requires management as such. This means that you must maintain the separate bank account, taxes, and treat it as an entity.

Anything purchased, must be purchased in the name of the trust, not you, or it will not go into the trust. The reason this is so important is if it is not done correctly, then you will still have to do probate of those assets. If you don’t avoid probate, then you don’t avoid some of the cost.

Medicaid Evaluates

A trust does NOT protect your assets from Medicaid evaluation. I don’t care what your friend at the coffee shop says, it doesn’t. Medicaid can (and should) see what you actually own in evaluating whether or not you qualify for Medicaid.

Type of Property Distributed

All property can be distributed through both.

Timing Transfer of Property

Wills transfer all property at death. Trusts transfer property during life to the trust, then during/at/after life from the trust to the beneficiaries.

Inheritance and Estate Tax

Inheritance tax is only paid in like 8 states, but if you live in a state in which it is required to be paid, then you have to pay it. Will or Trust will have to pay inheritance tax in Nebraska.

Estate tax is determined based on the value of your estate, trusts are helpful when you are over the estate tax exemption. It helps to lower the amount of estate tax you pay, but is not a magic bean.

Fiduciary

A fiduciary is a person that is held to special standards with special rules and regulations required of them.

Will-Personal Representative or Executor

Trust-Trustee

Control After Death

Wills allow for some control after your death. You can control where your property goes and allows some rules about selling or renting real estate within the family.

Trusts allow for a lot of control after death, dead-hand control as law school calls it. It is not completely unlimited, except in states like South Dakota, but it does allow you to control almost everything for around 100 years. If you have that problem child or problem in-law, this may be the solution for you.

Cost

It costs to draft all legal documents because it takes time and attorneys are worth their time. It usually costs less to draft a will than a trust, because it is simpler.

Maintenance during life is a small to large cost in trust management, depending on the size of the trust. Wills do not require any cost during life.

The cost of a will is usually during probate because it takes a lot of time, especially if the family starts to fight or call and email the attorney. If you have not handled a trust correctly, then there will also be costs here.

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Only you and your attorney can decide which form is better for you, this chart and the descriptions are to educate you so that you understand what your options are.

Disclaimer: This information is only specific and accurate for the states of Nebraska and Colorado. This information is intended as a general legal foundation and not specific legal advice. SD Law is not responsible for decisions and actions made relying on this document without a specific legal consultation and does not represent you as a result of this post.