Will vs. Trust: Crafting Your Perfect Legacy Plan

Have you ever watched a movie like Knives Out where the family trailblazer dies wealthy, the whole family gathers around excitedly, anxiously awaiting the reading of the will, taken aback by the outcome, and proceeds to argue incessantly that Dad or Mom must not have meant it? Yeah, that’s the movies, and the real execution of an estate doesn’t look like that. Rarely will you sit in a big room altogether to read the will.

Nonetheless, leaving your family instructions when you are no longer around is one of the most loving acts you can perform. It’s important that you communicate your intentions in advance, keeping everything in the open. Eventually, you should put it all in writing, and the two vehicles that predominantly come to mind for doing that are a will and a trust. If you have a trust, you still create a will because a trust can’t do everything you need to be done upon your passing (more below). For our purposes, a trust here refers to a revocable living trust and not one of the myriads of others (Trusts can get quite complex).

As always, we don’t offer legal advice. Our intent is to educate you and connect you with trustworthy legal professionals who can help you when needed. Let’s take some time to understand what wills and trusts have in harmony, the different functions for each, and why you might need one or both. I’ll also share what steps our family has taken.

Will & Trust Harmony

• Both outline who gets what. Typically, you list percentages of your estate that you want to pass in a particular direction. However, you can be as specific about who gets what as you want. Don’t forget to consider intellectual property (an invention or manuscript) or family heirlooms (e.g. jewelry). Oftentimes, you’ll write a separate letter of instruction or addendum that has a detailed accounting of your wishes. Some assets have no other means of passing to an heir except through your will or trust. A Coinbase cryptocurrency account is a perfect example because you aren’t allowed to name beneficiaries on the crypto assets there.

  PSA #1: Dealing with Coinbase in the event of the death of an account holder was dreadful.

• Neither affects beneficiary designations. If designated beneficiaries are assigned to a bank account, retirement plan, or insurance policy, those designations override anything stated in your will or trust. These designations streamline your beneficiaries receiving your assets.

  PSA #2: Set beneficiary designations wherever you can. In one instance, a client waited nearly a year for paperwork to be processed and receive funds because a beneficiary designation wasn’t set. It may seem trifling now, but it makes life simpler for your executor and beneficiaries later.

• Both appoint someone to represent you. In the case of a will, the person who represents your wishes is called an executor or personal representative, and in the case of a trust, that person is a trustee. Without someone specifically selected by you in one of these documents, a probate court will decide who closes your affairs according to state law.

• Your representatives have a fiduciary responsibility. This means they act in the best interests of your estate and beneficiaries. They certainly don’t self-deal and use your property for their personal gain. If they violate their fiduciary duty, they have legal liability for mismanagement and could be sued by a beneficiary.

• You can change them. If, between now and your demise, you change your mind about something, you can amend or revoke them at any time, as long as you have the mental capacity.

  PSA #3: Get your documents done now, rather than leaving your wishes open to challenge because of a health crisis. You can’t foresee what circumstances might call your capacity into question.

• Intended to decrease disputes. If you have a big, happy family with many adults in the room, this may not be a problem. If you have a colorful family or curmudgeous (I know that’s not a real adjective…) members, there may be contention. Widely varying assets of family members, children from other marriages, and the amount of time and money spent on your behalf by a family member can all create unique situations where one of your heirs thinks they are on the short end. Having a will and trust gives your representative dispassionate instructions to follow. If you think following your wishes will be challenged, consider videotaping (well, probably not TAPE) your testimony.

• Neither inherently shields you from estate taxes. If you’re wealthy enough to need to address estate taxes, neither of these legal documents will inherently shield your estate. It takes careful planning with an estate and tax attorney to ensure you’ve got the proper language and tools in place in your documents. We work with a great resource for that if you need a reference.

Will & Trust Distinctions

It’s also important to understand the different functions of wills and trust to understand why you might need one or both.

• A will comes into effect only when you die, but the type of trust in this article can start when you’re alive. That trust can own your assets and provide income during your lifetime.

• A will states how your assets will be dispersed and then terminates when that is complete, but a trust can become unchangeable (irrevocable) upon your death and continue for years so you maintain “control from the grave.”

• Trusts give detailed instructions about how your assets are to be used to take care of you if you are incapacitated, and your will has no force until after you die, so it can’t help you in that situation.

• Without a will, your estate will go through your state’s probate process, with a judge appointing an administrator and disposing of your property per state law. Dying without a will is called dying intestate. Your estate might still go through probate if you have only a will.

• Wills subject to probate can take months or years to close, leaving your beneficiaries waiting to receive your assets. If your property is held in trust, the assets pass outside the probate process.

• Probate is a public process with records available to the general public, so if you want to maintain privacy with your affairs, a trust will afford you that protection.

• If you have real estate property in a state other than where you live, you could be subject to probate in both locations if you only have a will. However, if you have transferred the property to your trust, you avoid that double probate because the power of your trustee is generally recognized across state lines.

• A trust won’t catch all of your property by default, so a will facilitates the transfer of your remaining property to your trust upon death.

• Wills can be relatively simple and cost-effective, but a trust should be drafted by a qualified estate planning attorney, which comes with increased costs.

• Only a will can define guardianship for minor children or pets. If you have nothing in place, the state in which you live determines who gets custody of your children. This alone was the biggest reason Tanya and I got in gear.

When Should I Use a Will vs. a Trust?

This is a great question for your attorney. We don’t give legal advice at The Dala Group, so I’ll share what Tanya and I did a few years ago when we decided we needed to get on board outlining our wishes. At the time, we had two minor children. As far as other assets, we had two cars, a house, bank accounts, one investment account, and retirement accounts. We wanted to get something in place that was cost-effective and quick. We thought leaving detailed constraints around inheritance timing was unnecessary and had no estate tax concerns to navigate. We found an online service that came highly recommended, so we used the service’s interview to specify guardians and some other customary parameters. Then, we printed the documents and took them to our local bank, where we signed them with witnesses and a notary. Someday, we will create a living trust if our situation becomes more complicated, but with nothing in place before, we were rolling the dice with what would happen.

Having Trouble Getting Started?

I get it. It’s not fun to consider these questions. It takes time, effort, and brain power. You are making decisions that are more weighty than well-done or medium-rare. You might have a tug of war inside as you think about who you want to represent your wishes and who you want to get your stuff. And none of it is fun because you’re thinking about the end.

We love spending time with our clients, understanding the cold, hard facts of their financial situation, the meaningful relationships in their lives, and their deeply held values. We come alongside you and ask questions meant to help you answer these weighty decisions. And we’ll take you step-by-step through the process, attending meetings with the attorney of your choice any time you want. If this is something that rings as a next step for you, contact us today to have a conversation.