Guest column: Do you need a will or a trust?
Posted February 22, 2011 By Carissa Giebel Commentary
I am often asked how plans will play out at death. Many are concerned about the potential hassle their loved ones will have to deal with. The answer depends on the planning in place. Was there a will, was nothing done, or was there a trust?
A will-centered estate plan disposes of property through probate, which can take anywhere from six months to several years. Your loved ones will have limited or no access to their inheritance until the probate is closed. If the decedent owned any real estate in a state other than the one he or she lived in, that real estate must go through another probate proceeding in that state.
For those without any plan, assets will transfer according to the laws of intestacy. Wisconsin law has chosen "default beneficiaries" for those who fail to plan. Assets will be distributed through probate, but this probate will take longer and cost more than it would have otherwise with a will.
A trust-centered plan can avoid probate altogether if all the trustmaker's assets are funded into the trust during lifetime. Funding is putting the name of the trust on your assets or naming the trust as a beneficiary. This avoids probate because the trust now owns your assets, and trust assets avoid probate and pass directly to beneficiaries. This saves loved ones the time and stress of dealing with courts and paying probate legal fees and court costs, ultimately leaving them with a larger inheritance.
How can assets be left to loved ones?
Through no planning at all and through a simple will, beneficiaries receive assets outright, which means there is no protection on the inheritance. Beneficiaries are likely to receive a check they can deposit into their bank account or do with whatever they choose. Some people are OK with that; others cringe at the idea and are looking for another option. The only way to provide any protection for beneficiaries is through some type of trust. Whether it be a testamentary trust eventually created through a will, a living trust, or an irrevocable trust, these instruments can be used to protect assets from creditor problems, bankruptcy, outside influences, bad decisions, special needs, lawsuits, minors receiving everything at age 18, or a controlling spouse you fear might lavish the inheritance or take it during a divorce. It's even possible to provide asset protection for a surviving spouse.
Keep in mind that all trusts are not created equal. Because you have a trust does not mean your estate will avoid probate or your beneficiaries' assets are protected. If you are unsure, have your plan reviewed.
So how do you know if you need a will or a trust? A common misconception I often hear is that trusts are just for the wealthy. It doesn't matter the size of the estate. It's more about what's important to you and the legacy you want to leave for loved ones. The answer depends on your unique situation and your personal preferences.