Written By: A. Suzanne Robertson, CFP®

When it comes to estate planning, many clients are asking us if they need a will, a trust, or both. Estate planning is a crucial step in the protection and smooth transfer of your assets upon your passing. Among the various tools available, a will and a trust are two key components that can play significant roles in your estate plan.  Each serves a distinct purpose, and your estate may be such that you don’t need both, but if you do, combining them can provide a comprehensive approach to help safeguard your assets and ensure their seamless transfer to your chosen beneficiaries.

Determining whether you need a will, a trust, or both depends on your individual circumstances, financial goals, and desired level of control. In this blog, we will explore the differences between wills and trusts, explain why having a will is essential, and discuss the advantages of incorporating a trust into your estate planning strategy. Understanding these concepts will help you navigate the complexities of the estate planning process, make better-informed decisions about safeguarding your legacy, and ensure your final wishes are met.

Since I believe a will is an essential starting point to estate planning, let’s start there.

A will is a fundamental component of your estate plan.  It is a legal document that outlines how your assets should be distributed after your death.  Through it, you will appoint an executor to carry out your wishes, and if necessary, name guardians for your minor or disabled children. 

Some key advantages of wills include:

1. Ease of creation: Creating a will is often a straightforward process and can be done with the help of an attorney or using online templates.  Though not recommended, some states will accept holographic (handwritten) wills.
   • Please note that not all states will accept a holographic will and many have specific criteria that must be met for a holographic will to be valid.¹  For instance, Virginia will accept a holographic will only if it is written entirely in the hand of the decedent and authenticated by at least two disinterested individuals.  Colorado, in addition to being signed and having the material parts written in the hand of the decedent, requires a holographic will to be witnessed by at least two individuals who are not beneficiaries.  Your state may have even more stringent conditions that must be met or, as in the case of Kansas, may not accept a holographic will at all. 

2. Flexibility: A will allows you to modify the provisions as your circumstances change, ensuring your estate plan remains up to date.
3. Cost-effective: Wills are generally less expensive to set up compared to trusts.

However, there are a few limitations to consider when relying solely on a will:

1. Probate: Upon your death, a will must go through a legal process known as probate, during which the court oversees the distribution of assets. This can be time-consuming and may expose your estate to public scrutiny.
2. Lack of privacy: Unlike trusts, wills become public record during the probate process, potentially compromising the privacy of your beneficiaries and the details of your estate.
3. Limited asset protection: Wills do not offer the same level of asset protection as trusts, which may be a concern if you have substantial assets or complex financial arrangements.

Typically, I recommend clients address these limitations by incorporating a trust into their estate plans.

A trust is a legal arrangement that allows you to transfer your assets to a separate entity managed by a trustee for the benefit of your designated beneficiaries. Trusts can be revocable (changeable during your lifetime) or irrevocable (cannot be modified or revoked).  By transferring your assets to a trust, you effectively remove them from your ownership and potentially from your estate thereby minimizing your estate taxes. Several reasons why you might consider incorporating a trust into your estate plan include:

1. Avoidance of probate: One of the key benefits of a trust is that it bypasses the probate process. Assets held in a trust can be distributed promptly and privately, without court involvement. This helps minimize delays, expenses, and potential disputes.
2. Control and flexibility: A trust provides greater control over how your assets are managed and distributed. You can set specific instructions, such as distributing funds gradually over time.  This is particularly useful when providing for loved ones with special needs or spendthrift tendencies. It also helps when you have complex family dynamics or minor children.
3. Asset protection: The type of trust you establish can offer varying degrees of asset protection. For example, an irrevocable trust can shield assets from creditors, lawsuits, potential claims, and estate taxes.
4. Privacy: Unlike wills, which become public record during probate, trusts offer enhanced privacy. The details of your assets and distribution plans remain confidential, providing privacy for your beneficiaries.
5. Tax planning: Certain types of trusts, such as bypass or generation skipping trusts, irrevocable life insurance trusts, or charitable remainder trusts, can provide tax advantages and help minimize estate taxes.

That all said, trusts have several considerations to keep in mind.  These include:

1. Trusts can be extremely complex and establishing one requires more time and financial investment than creating a will. Professional assistance from an attorney or estate planner is often necessary and highly recommended.
2. To enjoy the benefits of a trust, you must transfer your assets into it. This can involve legal paperwork and ongoing management to ensure assets are appropriately titled and maintained within the trust.

Estate planning is a complex process and the decision of whether to have a will, a trust, or both may seem daunting. While wills and trusts separately have their merits and shortcomings, combining them can provide a more comprehensive estate plan.  By utilizing both a will and a trust, you can leverage the advantages of each to create a flexible and better-tailored estate plan. A will is essential for addressing matters such as guardianship and specific bequests. A trust can effectively manage a broader range of assets including real estate, investments, and business interests while maintaining your family’s privacy and providing for beneficiaries with unique circumstances (minor children, family members with special needs or who require long-term care) all while protecting your assets from your heirs’ creditors or potential ex-spouses. This coordination helps avoid inconsistencies and ensures that all your assets are accounted for while the trust allows for the assets inside it to avoid probate and effect a more efficient and private transfer of those assets to your beneficiaries. In general, though, if your estate is relatively simple and you don’t require extensive control or asset protection, a will might be sufficient on its own. As always, we recommend you seek professional assistance to navigate the intricacies of estate planning to better ensure a successful transfer of your assets in the most tax efficient way possible while providing peace of mind for yourself and your loved ones.

Say What?

A Kansas City, Missouri hotel has agreed to honor a 40-year-old gift certificate that a couple recently found in their wedding album. The certificate states the bearer can use it any year on the month of their wedding anniversary to stay at the same price as their wedding night. So the couple will be able to celebrate their 40^th wedding anniversary at 1983 prices – $38 will be the charge for their room. 

This week in history

1956 – President Eisenhower called for $50 billion to be spent over 13 years for the construction of over 42,500 miles of interstate highways using the Interstate Highway Revenue Act which was to be funded by taxing gasoline, currently this tax is 18.4 cents for each gallon of gas.

1984 – The Motion Picture Association of America introduced a new film rating, PG-13. The initial categories were G (appropriate for all ages), M (mature audiences but all ages admitted), R (persons under 16 not admitted without an adult), and X (no one under 17 admitted). Red Dawn, starring Patrick Swayze and Charlie Sheen was the first PG-13 movie to be released in theaters. 

1997 – Mike Tyson was disqualified after biting off part of Evander Holyfield’s ear.

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¹ Legal Zoom, accessed June 29, 2023