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Trust Vs. Will & How to Start Your Estate Plan

You may have heard what a trust or will is, but you may not understand the nuances or differences between them. Each of these can be useful tools in estate planning, but picking one comes down to what your intended purpose is. 

With a trust, you can distribute assets prior to the death of the trustor, at the time of death, or afterward. This depends on the trust and how it is set up.

On the flip side, if you have a will, assets must be distributed at the time of your death with the assistance of legal representation. To determine which one is best, it is a good idea to understand all of the various options that you have between the two.

Estate Plan Considerations

Protecting your assets, and properly setting up the mechanisms to pass inheritances along to dependents is fairly important. In order to ensure that your loved ones are taken care of, there are several things to consider in order to preserve your estate.

Some of the things that you need to get in order when starting your estate plan are as follows:

  • Take Inventory:  This includes valuables, personal property such as jewelry or electronics, all the way up to your home.
  • Hire a Professional: Financial advisors will often partner with legal firms to prepare necessary documents.
  • Review Dependents Needs: Potentially life insurance, or guardianship.
  • Finalize Beneficiaries: This often consists of family or friends and will be the individuals inheriting your assets.
  • Establish Legal Directives: Such as trusts, power of attorney (POA), or medical care directive.
  • Understand the Taxes: These vary from state to state, so be sure to review your respective state’s estate or inheritance taxes.
  • Safely Store Documents: Estate plans can be pretty large in size, but they also include tons of personal information. Be sure to not leave these laying around.
  • Funeral Costs: This is optional, but it could be one item off your mourning family’s plate.

What is a Will?

A will is a legal document that states who will get all of your assets or personal property upon your death. Without this legal document, and if you do not designate someone to execute your wishes (an executor) the choices will be left up to the probate courts. A probate court will assign an administrator who will get to decide where the assets will go. This can get messy, so it’s crucial to set up an appropriate plan.

Main Types of Wills:

There are many different types of wills you can establish, all of which may serve different purposes and benefits. You need to keep in mind several factors when choosing the right one for you. Here is a high-level view of the most common types of wills.

Testamentary Will

Also known as the last will and testament, a testamentary will is what you would consider being the “traditional” will. It is a legal document that details how to transfer all of your assets to your beneficiaries upon your death. Amongst other things, Testamentary wills may detail who the executor is, who will be the primary caregiver for your children upon your death and set up trusts for beneficiaries.

Mutual Will

A mutual will is a type of will that typically a married or a committed couple would create. This type of will is created jointly and is legally binding as such, rather than individually. The living partner would be legally bound by the terms of the will in the case of the death of one party. You would write a mutual will if you wish to ensure that your assets are successfully passed to your children, as opposed to your living spouse’s potential new partner as an example.

Pour-over Will

A pour-over will works in conjunction with a living trust, meaning you must also have established a trust for the will to pour into. The biggest difference from other wills is that the main beneficiary is in fact the testator’s living trust. A pour-over will cover assets that have not been transferred to the trust upon your death. At that point, your remaining assets will be automatically transferred to an already established trust.

Other Notable Wills

There are other wills worth noting, albeit they may not be used as often, or not as trustworthy. These are spelled out in our guide to making a will, check it out for more detail.

  • Holographic Will
  • Oral Will

What is a Trust?

A trust is a legal fiduciary arrangement where the trustor assigns the trustee the right to hold the title of assets and properties for the benefit of the listed beneficiaries. A trustor is a person who establishes the trust and identifies which beneficiaries are to receive which assets. A trustee is a person in control with a legal obligation to administer the assets or property for the purpose specified in the trust.

Types of Trusts

Now that we have a high-level understanding of what trust is, we can begin to look at the basic types of trusts. Some of the common basic trusts are as follows below, from there we can glance at the variations of these types of trusts.

Revocable Trust

A revocable trust designates beneficiaries who will receive asset distributions upon the death of the owner of the trust. A revocable trust is able to be altered, changed, or terminated entirely at the discretion of the trustor. The assets are transferred to the beneficiaries of the trust upon the death of the trustor. The big advantage of the revocable trust is that it is flexible during the lifetime of the trust, while also allowing the distribution of all assets from the estate if necessary.

Irrevocable Trust

With an irrevocable trust, the assets you place in it are essentially not yours anymore, and you are not allowed to make changes to it without the consent of the beneficiaries. Once assets are placed in the trust, the owner gives up all legal ownership to all of the assets and properties. At the time of the death of the trustor, the trustee would manage the assets and distribute them to any and all beneficiaries. 

Living Trust

A living trust is used as a tool in estate planning in order for individuals to pass along assets and property without having to go through the probate process. Living trusts are managed by someone with a fiduciary obligation to manage the account in the best interest of the beneficiaries. If income is earned on trust assets, it must be reported as income tax for the settler. Living trusts also do not offer any tax benefits.

Special Types of Trusts

In addition to the basic types of trusts mentioned above, there are other special types of trusts that you can use to establish your estate plan.

  • Testamentary Trust
  • Credit Shelter Trust
  • Generation-Skipping Trust
  • Qualified Personal Residence Trust
  • Insurance Trust
  • Qualified Terminable Interest Property Trust
  • Separate Share Trust
  • Blind Trust
  • A Spendthrift Trust
  • Marital Trust
  • Totten Trust
  • Charitable Trust
  • Special Needs Trust

How To Make An Estate Plan?

In order to make an estate plan, you must consider what your intentions are and what your options are. You have the choice of the different variety of trusts or wills, but also the liberty in how they’re established. These are the methods that you can use to start your estate plan.

Make Your Own Will or Trust For Free

You can go online easily and locate a free resource that will guide you through creating your will. This is one direction to wish to not feel like working through an attorney. 

Who is this method for?

  • If you have a simple distribution plan for your assets.
  • If you have a modest estate with only one or a couple of beneficiaries.
  • If you would like to establish a will without paying any fees.

Work With An Attorney

An online free method for creating a will or trust can work for you and your family, up to a certain point. However, at a certain point, it gets complicated and could require professional assistance. It is suggested that you work with an attorney, particularly an estate planning attorney if your net worth is large and you have a lot of assets to account for. 

Who is this method for?

  • To have a professional update document appropriately as necessary.
  • If you want to make sure that your documentation complies with the law requirements.
  • If you want to correctly identify assets and beneficiary designations.

Use An Online Service

There are a number of online services, for example, Trust & Will can provide a similar service that a lawyer might also do, but more affordably. If you like the idea of assistance in planning your estate and creating a will or trust, but do not want the potential large fees that come with attorneys, this could be the route for you.

 Who is this method for?

  • Someone who wants professional advice at a fraction of the cost.
  • If you want to be walked through the process of making a will so you can ensure that all information is accounted for and correct.
  • If you wish to not set up an in-person visit with an attorney or pay large fees.
Who Creates the Trust or WillEstimate Costs
Attorney This could range from an hourly fee or flat rate
Online PlannerTrust & Will charges $89 and $399 for a will or trust, respectively

Will vs. Trust: Which Do You Need?

Whether you have a large amount or a small number of assets to pass on to your heirs, you should initiate one of these if you wish to have a safe transfer of your estate. It depends on what you wish to accomplish, and how you want to handle your assets. Answering that will determines if you should use a trust or a will.