The Absolute Beginner's Guide to Answering: Will Or Trust?

Good morning and welcome back!

Having a plan makes any life decision easier.   Knowing what to do is made simpler if we know what terms mean. In Super Easy Ways to Understand Basic Estate Planning Terms, we covered five of the most basic definitions of estate planning. Included in those definitions were the terms will and trust. Let’s dig into those a little more. “To will or to trust, that is the question.”

Generally, estate planning takes off in one of two courses. There is the will course. And there is the trust course. Briefly, a will is a document that is created now, takes effect only when the creator passes away, and it ultimately distributes your possessions at the time of your passing. On the other hand, a trust is a document that is created now, goes into effect now, and it ultimately distributes your possessions as a will would, BUT that distribution can happen at different times, and not just at your death.

So, how do you decide between the will or the trust course? There are a number of considerations to take into account. Each consideration should be weighed according to a value you place on it.

Jeppesen Law, PLLC places its emphasis on families with young children. So, that is generally where we would start the discussion. If you have young children, they tend to need the protection of a trust. But, if you are passing your possession on to older, more experienced beneficiaries, then a will is a good option.

  

Do you want to manage how your possessions are deployed after you pass away? Some great examples are provisions encouraging and rewarding beneficiaries for post-secondary education, philanthropic work, or for caring for other people, such as being a stay at home parent. Maybe you are just unnerved by the idea that if you pass away with a minor child, that child will get everything, at the age of 21 and not know how to handle it. If this is a concern of yours, a trust is a great option to consider as it provides great flexibility in distributing your assets throughout the beneficiaries' lifetime.

Privacy - If privacy is a concern, you should know that “where there is a will, there is probate.” We also talked about probate in Super Easy Ways to Understand Basic Estate Planning Terms, as being an open to the public, court process. That means all the information filed with the probate court is available to the anyone who might be curious. Generally, if a trust is done properly and properly maintained throughout the years, you will avoid probate and its public nature.

Cost - This is generally a consideration people take into account. A will costs less upfront. This is true because a will is more simple to create than a trust, but ends up costing more in the long run. The benefit of a trust is that it is a one-time fee, while a will costs you at the beginning and the end during the probate process. If you are a married couple, the total cost of a will and the probate process will more than double the cost of a trust. (See Jeppesen Law's Pricing Schedule).

Organization of your possessions -  A will does not organize your belongings. This is an unfortunate aspect of will based plans. Generally, the person charged in the will to have responsibility over organizing your possessions is a family member. This can be difficult if this person is not the surviving spouse, or it can be difficult if the surviving spouse did not participate in the family’s financial planning. A properly formed trust holds these possessions during your life, so there is no need to “find” them after you pass.

Three other areas worth consideration:

Access to assets - With a trust, generally you have immediate and continuous access to assets. This is true for you during your life and for your named beneficiaries after you pass. However, any possessions distributed through a will technically need to begin the probate process by petitioning the probate court for permission to sell or use any of the assets.

Incapacitation - Trusts are set up to proceed in case of your incapacitation. A will does not have this ability as it is only controlling at your death. A durable power of attorney has a limited time period of coverage for incapacitation. But, any prolonged duration generally requires filing a guardianship proceeding in court.

Challenges - Trusts generally avoid these problems as trusts are private, making it difficult for challenges to be filed. A will and the probate process are public, so anyone claiming an interest may challenge the will.

                There you have it, an absolute beginner’s guide to answering whether a will or a trust is the right choice for you. These are not all the considerations that one might possibly ponder, nor are these very detailed overviews of each consideration. They are just meant to get an absolute beginner to start thinking about these considerations.

Super Easy Ways to Understand Basic Estate Planning Terms

Welcome Back!

In Estate Plan?! I Ain't Rich! we covered the idea that estate planning is for everyone, not just the very wealthy. Once you come to grips with the idea that you need to take control of your own plan, you are faced with another road block.

Estate Planning Terms! What are these words? Is this a new language? It looks like English, but doesn’t read like English. What does it mean? (And these were just the first thoughts I had when I opened my first Wills, Estates, and Trusts textbook.)

With anything in life, to play the game effectively, you must understand the terms. I’ve found that a basic understanding puts people at ease and an attempt at advanced understanding puts people to sleep (except for your friendly family advisor who geeks out on this). So, what you need to know to fake until you make it; probate, last will and testament, trust, power of attorney, and health care directive.

Probate. This is an often misunderstood proceeding. Generally, this a court proceeding where one person is asking the court to determine how someone else’s property should be distributed after the second person passes away. The goal of probate is to get an order from court allow for distribution of the property. This is either done according to a will or the state’s law of intestate succession. That is you die without a will or trust and the state attempts to guess at how you would distribute your property. Often, it guess incorrectly and family rivalries and old bitterness arises.  

Last will and testament. This is a document prepared by you which distributes your property according to your wishes, allows you to select someone to represent your estate before the probate court (this person is usually called a Personal Representative), and allows you to nominate the guardians for your minor children. One drawback is that this document is not controlling until you pass away. But it is an invaluable document to have. Instead of the court guessing what it should do, a will allows you to tell the court exactly what you would like to happen with your children and property. Don’t like people making decisions for you? Me neither.

Power of Attorney.  A document where one person gives power to act (called an Attorney in fact) on behalf of another, when that person cannot act for themselves. Generally, this requires a doctor’s determination of incapacity. The use of this document hopes to avoid Guardianship court proceeding. A power of attorney can be active as soon as it is signed, or it can spring into action with a physician’s determination of incapacity. There are legitimate reasons for either option.

Trust. - A document which contains all of your assets and provisions for distribution of your assets. Trusts are controlling and active as soon as you sign it, unlike the will which only takes effect after you pass away. A trust allows you to manage property while you are alive and also allows for distributions while you are alive as well when you pass away. Trusts allow for some pretty cool and specific distributions which can be used to help impart your values and beliefs unto your beneficiaries.

An additional benefit of a trust is probate avoidance. If all of your property “held” in trust, there is no need for probate. This provides access to assets immediately after someone passes away.  Probate often requires a waiting period to allow the probate court to issue an order appointing someone as personal representative before assets are available for use (this is a law that many people unintentionally break).

Health Care Directive. Also called a Living Will or Advanced Directive. I like to refer to it as a health care directive because the terms living will and will are easily misused but have very different responsibilities. This document nominates someone to act on your behalf for healthcare purposes and allows you to make your own end of life decisions (ie life support, nutrition and hydration). With a health care directive you get to decide how your care is handled. The person appointed by you is guided by what you put in the health care directive. Your “agent” works with the doctors and helps to interpret your wishes.

           Wow! Even the basics can get heavy. But there you have it, a basic understanding of the pillars of estate planning and the court process associated with it.

Estate Plan?! I Ain't Rich!

The term “Estate Plan” conjures up images of Scrooge McDuck swimming in his pile o’ gold or the rolling green hills of country club golf courses. So when people hear the term, have these mental pictures, realize that does not describe them, and they automatically dismiss the following conversation because it cannot possibly be relevant to them. They don’t even have a pool in their backyard, let alone enough gold to swim in.

This is typical because the term estate planning is often misused. Not because people use it incorrectly, but because they use the most narrow interpretation of it. Generally, the most common misconception of estate planning is that it is only relevant to multi-millionaires who are planning for retirement and minimizing their tax liabilities. This description is not incorrect, yet it represents a very small category of estates.

Estate planning is really planning for what you have, who you want to pass it to, and how you want to take care of those people you love after you pass away. A more appropriate image is that of a gift, with its own name tag of who you plan on giving it to.

But we already established that you ain’t rich. That’s fine, neither am I. You have much more to gift to your loved ones than just a bank account, home, or life insurance policy. What do people stand up to share at funerals? Life stories, adventures, lessons learned, and memories made with the individual that passed. Your assets are just a part of your whole estate plan. You can use an estate plan to share values, beliefs, dreams, aspirations, hopes, and stories. This sharing is usually done through one of two avenues, a living trust or a will.

A living trust is a document that comes into existence immediately after being signed and continues permanently, unless you decide to revoke it. It operates very much like a business as it has its own name, it can give and receive property, and after the creator passes away, it can get its own tax identification number. A trust’s key terms include who is in control of trust property, (if it is a revocable living trust, that is generally you the creator) and how to distribute your property once you pass away. This second aspect plays a huge part in sharing your values, beliefs, dreams, aspirations, hopes, and stories with the beneficiaries of your trust. Future posts will cover the different aspects of trusts in more detail.

A will is also a document that is signed, but doesn’t come into existence until the creator passes away. This means that the demands made and the provisions contained in a will are not controlling until after death. The most common will is a simple will and unlike the trust it does not have the same characteristics of a business. A will is more simple to set up than a trust, but it is not as flexible. It is also simple to destroy, replace, or amend. Also unlike a trust, a simple will is limited in its ability to share ideas, thoughts, and values. It is more of a checklist of who gets what of your goodies. Future posts will cover the different aspects of wills in more detail.

           Estate plans are for everyone, especially people with young children. Many parents fail to plan because they falsely believe they aren’t rich enough to do so. If you pass before your children are able to know you, they won’t want the money you were able to give them. They will want the knowledge of who you were, what you believed in, and what your goals were. Do you doubt that?