What Is A Will?
We’ve all seen TV shows where a character dies and someone pulls out a crusty old scroll from a good hiding place, with the words “Last Will and Testament” scrawled on it. But what is a will really? What does it do, and why do you need one?
.Think of a will as a document where you are leaving a set of instructions.
Part of a will is naming an executor, who is the person who’s charged with carrying out your instructions. Often, this is a spouse, adult child or trusted family member or friend.
A will only takes effect when you pass away. Until then, it’s just a paper sitting in a drawer, just in case. A will needs to be updated every five years or sooner if you’ve had a major life event, like marriage, divorce, a new child or a new home.
One reason people opt for a trust over a will is to avoid the process of probate. But in Texas, that’s not as big of an issue, since the Texas Probate court system isn’t as complicated or difficult to maneuver as other states are.
If you have a valid will, and there is no contest, probate in Texas is no more painful then renewing your driver’s license.
A will is often less expensive up front, but there are costs down the road, such as paying a lawyer for the probate process, which is usually done out of the estate’s coffers.
For those with minor children, it’s possible to create a trust inside of a will that appoints an adult to manage their inheritance until they are older and hopefully mature enough to handle money.
In summary, a will can:
- distribute your assets.
- declare who will be in charge of distributing your assets.
- declare a guardian for your minor children.
A will does not:
- avoid probate court, although a good will can make probate relatively simple.
- cover your medical or legal powers of attorney, which decides who would make decisions if you were incapacitated.
- keep your affairs private. Wills are public documents.
What is a Trust?
A trust, more formally known as a revocable living trust, is a legal entity set up to control your assets. To create a trust, you first set it up, and then take all of your assets – your house, your car, your property, your accounts – and re-title them in the name of the trust.
While a will only takes effect once you die, a trust is set up while you’re alive. You maintain control of the trust and all of its assets until you pass away.
In addition to creating the trust, you name trustees – people who are in charge of the assets in the trust – and a beneficiaries – people who will receive the trust’s assets. Sometimes, the trustee and beneficiary are the same person. In other situations, you can set up the trust to be managed for your beneficiaries by a separate trustee.
Another difference between a will and a trust is how much they cost and when the expenses occur. A living trust is generally much more expensive than a will, at least in the short term.
“With a living trust, you’re paying everything up front. With a will, you’re pushing off all the expensive of probate until after you’re gone,” says Gonzales.
One benefit of a trust is that it generally includes your legal power of attorney. Most trusts are set up so that the power transfers upon death or if a person is incapacitated, making a separate power of attorney unnecessary. However, if you forget to put an asset within the trust, the trustee has no power over that asset.
But what that client and others who create a trust might not anticipate is how circumstances may change. A trust is “revocable” or able to be changed during your lifetime. But after you pass away, it’s a contract and can’t be altered, leaving your beneficiaries without any flexibility.
Another hazard of trusts is their need for maintenance. Buy a new car? Move to a new house? Make sure you remember to update your trust and re-title those assets in the name of the trust. Otherwise, they won’t transfer through the trust, and your family will have to go through probate anyway.
To summarize, a trust can:
- ensure exactly how your assets transfer and who has control over them.
- avoid the probate process.
- includes legal power of attorney.
- pay your legal expenses up front, avoiding later costs.
- keep your affairs private, as trusts are not on file publicly.
A trust does not:
- specify a legal guardian for your minor children.
- have any flexibility after you die.
- include any assets that you accidentally leave out or forget to have re-titled.
- cover your medical power of attorney.
Which One Is Right For Me?
Every person’s situation is unique, so the best person to help you decide what kind of estate planning documents are best for you is a qualified estate planning attorney. Does meeting with an attorney sound expensive? It doesn’t have to be.
Although a typical will package costs $1,000 to $1,200, and a trust can run $2,500.