Wills vs. Trusts: In Plain English

Lance D. Like is a Certified Specialist in Estate Planning & Administration. He is the founder of the Like Law Group LLC, a Bloomington, Indiana law firm. Practice areas include estate and Medicaid planning, elder law, probate, trust administration, and business planning.

Herald Times Readers’ Choice Awards
Greetings! It is that time of year again for the Herald Times Readers’ Choice Awards. This is a great opportunity to recognize local businesses in our community for their great products or service. I encourage you to take a few minutes to vote for your favorite local businesses. A paper ballot can be found in the Herald Times Newspaper if you prefer. However, an online ballot is available. Here is a link that will take you directly to the “service” section category:

If you believe my firm has earned your vote I would be honored if you would take the time to vote for my firm in the “Law Office” category. Simply type in “Like Law Group” in that field. Make sure you vote for all of your other favorites as well. Voting ends Friday March 11, 2016 at 5 p.m.

Now, on to this month’s article titled Wills vs. Trusts:
Everyone has heard of wills and trusts. Most articles written on these topics, however, often presume that everyone knows the basics of these important documents. But, in reality, many of us don’t – and with good reason – as they’re rooted in complicated, centuries-old law.

Let’s face it, if you’re not an estate planning attorney, these concepts tend to remain merely that – concepts. So, if you’re “fuzzy” about wills and trusts, know that you are not alone. After we show you the difference between these two documents, we’ll tell you why a trust is often (but not necessarily always) the better choice.

Wills vs. Trusts: Defined
Let’s take a minute and define both “will” and “trust”:

Will. A will is a written document that is signed and witnessed. A will is considered a “death” document as it only goes into effect when you die.

A will:
• provides for the distribution of assets owned by you, but not assets directed to others through beneficiary designations (e.g. life insurance or retirement benefits)
• sends assets in your individual name or payable to your estate through the probate process
• allows you to appoint permanent guardians for your minor children
• names the person you wish to settle your estate (e.g. executor or personal representative)
• doesn’t always include protective trusts for beneficiaries and tax planning because many wills are simple 2-3 page documents
• permits you to revoke or amend your instructions during your lifetime
• tends to cost less than a trust on the outset but costs more to settle during court proceedings after death
Trust. A trust is a legal document, signed and (depending upon state law it may also have to be witnessed), and effective during your lifetime, during any period of disability, and after death. Because the trust is effective during your lifetime and you can change it, it’s referred to as a “living” document.

A trust:
• has lifetime benefits
• provides for the distribution of your assets
• avoids probate if fully funded
• provides for a successor trustee upon your death or incapacity
• allows for the management of your property – even if you’re incapacitated
• can address appointing disability guardians for minor children
• often includes protective trusts for beneficiaries and tax planning
• permits you to revoke or amend your wishes during your lifetime
• costs more than a simple will on the outset but much less upon administration, while typically providing significantly more value

The Probate Process: A Key Element in Deciding Between a Will and Trust

One key element in deciding between a will and a trust is understanding the probate process. The term “probate” – which literally means “proving” – refers to the process wherein a decedent’s will must be authenticated, outstanding legitimate debts paid, and assets transferred to the beneficiaries. State law dictates how this process plays out. Part of the process includes publishing notice to creditors in a newspaper and there are certain mandatory waiting times in the probate process that must be followed.

The downside is that probate can take a long time – even years – it’s expensive in many places and the entire process is completely public, meaning your nosey neighbor Nancy and evil predator Paul both know exactly who got your assets how to contact them. In virtually all cases, the only upside of probate is that creditor claims are cut off.

Now, in Indiana probate is often times not as onerous as it is in other states. Most probates my firm handles are done so through what is referred to as “unsupervised” probate administration which typically is less costly to handle than a “supervised” probate.

• Probate Guaranteed with a Will. If you use a will as your primary estate planning tool, you own property in your individual name, or property is made payable to your estate, probate is guaranteed.
• Probate Avoided with a Trust. If you use a fully-funded trust as your estate planning tool, probate is avoided – saving your family time and money.
The Bottom Line on Wills vs. Trusts

HOW TO DECIDE: As everyone’s situation is different, it’s important to analyze every aspect of your situation – and what the future may hold – so that you can determine what’s right for you and whether probate avoidance, incapacity planning, and trust protections have value to you and those you love. Many people receive the greatest overall benefit from having a trust. Although I prepare trusts for many clients each situation is different. That is why the counseling is important to make sure the client understand all the options and then can make an educated decision about the structure of their plan.

ACT NOW: Without an estate plan in place, whether a will based plan or a trust based plan, you and your family are left completely unprotected. Call our office now and we’ll help you determine whether a will or a trust makes sense for your situation. You don’t have to make these decisions alone.

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.