Wills vs. Trusts: An Introduction
For many people, estate planning can be intimidating. Contemplating what will happen after you are gone is naturally uncomfortable, but estate planning itself is not a complicated activity. Taking steps to make sure that your loved ones are provided for after your passing offers comfort that makes the process more than worthwhile, and you can rest assured, knowing your wishes for how your property is settled and who will care for your minor children will be followed under the force of law.
What happens to your property when you pass?
When someone passes away and they own property, they either die testate or intestate. We will come back to the topic of property ownership shortly (it makes a difference), but for now, just know that “testate” means that you have a will, and “intestate” means you do not have a will.
In both cases, the appropriate next step for handling your estate after you’ve passed is that a lawsuit, called probate, is filed. Probate includes several areas of the law, but it is most often used for handling the distribution of someone’s assets after they die (called “estate administration”).
Wills establish how your property is distributed after your death
In a probate case, paperwork is filed in the county in which you lived stating who you were, where you lived, when and where you died, who your surviving heirs are, and whether you had a will or not. If you have a will, it is filed along with the probate paperwork.
Once the paperwork is filed, your heirs must go through the process of collecting and inventorying all of your assets, putting an ad in the classified section of the newspaper so anyone who has claims against your estate can come forward, and then waiting for those claims to come in. Eventually, after several months of playing “hurry up and wait” as your heirs file paperwork, wait for responses to that paperwork, file new paperwork, inventory your property, and put together and pay any debtor claims with your assets, whatever is left over is then distributed to your heirs per the instructions in your will. This is where the will/no will distinction matters.
If you have a will…
With a will, you get to dictate where and to whom your property goes, whether it be specific items like family heirlooms to certain children, your jewelry to your spouse and children, or your stamp collection to a grandchild. Most people draft a will giving their personal property to their spouse or, if their spouse did not survive them, to their children. Many people also make charitable contributions after they pass on, such as to their church, for example, or they may make lump sum gifts of cash to family members. The options are really limitless.
If you don’t have a will…
If you do not have a will, there are specific laws (called “laws of intestate succession”) that come into play and dictate where your property goes. These laws are far more absolute and do not allow for distinctions in distribution. Typically, intestate succession laws will distribute any remaining assets to your kids in equal measure, or if you are married, one-third of your personal property (and a very small portion of the marital home) goes to your spouse.
For many people who pass without a will, their spouses are the ones who suffer the most under these laws because the amount of assets they control (like everything in the marital home) gets reduced by two-thirds.
With a will, once your estate is ready to distribute your assets after claims are settled, then those things you worked so hard to earn will go where you want them to go and to whom you want them to go. Without a will, you leave that up to chance. And “chance” is not really something that helps people sleep well at night.
A will is something that is very easy to setup with an experienced law firm, and we can certainly help you with that.
Trusts maintain ownership of your property, even after you pass
When someone dies and owns property, the legal process requires the deceased’s property be probated, but there is an exception: it is called a trust.
A trust, in its simplest definition, is a fictional entity you create that “owns” your property. Depending on the type of trust, you may have full control over that property so that you can give or remove property to do with it as you will (a “revocable trust”), or the trust owns the property, and it cannot be altered except under very specific and complicated circumstances (an “irrevocable trust”).
Essentially, the trust owns all your property. Anything from personal items, like your clothes or your wedding ring, to your vehicles, property, or anything else you own can be transferred to trust ownership. Why is this done? As a fictional entity, the trust does not die; therefore, it does not have to go through the “hurry up and wait” probate process. Instead, the trust sets up specific instructions of what to do when you die, including distributing your property minutes after your death, if that is what is your desire.
Unlike a probate case, which courts do not want to keep open indefinitely, a trust can exist for years, and you can easily set up disbursements of money over time in installments to an heir who may not be in a position to receive all of their share of your estate at once. A trust has all the same distribution possibilities as a will but avoids the rigorous framework of the court system delaying distribution.
A trust is also very cost effective in comparison to a will. While a will is cheaper to set up on the front end, an attorney will need to be hired to handle your estate through the probate courts after you pass away. By contrast, you pay more up front to setup a trust, but you are then largely done at that point. An attorney may provide some simple advice to the person running your trust after you pass (the “successor trustee”), but it may not result in additional cost to your heirs, depending on complexity of your wishes. Likewise, spouses who would generally have two probate cases to deal with when one passes, could handle their estate planning under one trust that would take care of both of them, so the savings can really be significant.
We at The Law Group of Northwest Arkansas LLP are experienced in estate planning, and we are ready to explain the complexities in detail, answer any questions you may have, and guide you through the process, moving you from being in a position of worrying about how your heirs will be taken care of to a position of being able to relax because you have addressed those issues ahead of time.
If you have read this far, you’ve gotten further than most. And since you’ve come this far already, why not give us a call or an email? You can take comfort in working with us.
We call it practicing law the right way; we are The Law Group of Northwest Arkansas LLP.