It is crucial for your client to establish asset control of their estate in the event of their death. Propper estate management involves specifying the way in which your clients' estate is distributed and allocated. A will or living trust ensures that your client has the final say in where their assets end up after they are gone.
After the proprietor of an estate passes away, you must conduct an estate transfer by upholding the clients will or trust. Which one is best, however, depends on your client and the state of their assets.
This article provides a breakdown of a will vs trust, and how to decide which is best for your client.
Will vs Trust: Which Is the Best for Your Client?
Wills and trusts ensure that the terms of the transfer of a client's assets are clearly defined. They serve to appoint an executor of the estate in the event of the client's death, as well as the decision of who gets what.
Both documents set up legally binding terms by which assets are distributed amongst an estate's beneficiaries.
In many cases, clients with small estate assets do not need a will or trust. The United States Estate and Gift Tax Law ensures that all estate assets transfer to the closest living relative without incurring taxes.
Clients with larger estates, however, must dictate the transfer of their assets through a will or trust that is set up before death.
Clients can set up a will and a trust. A will establishes the terms of custody in the event of a guardian's untimely death. A trust enables an estate holder to dictate the terms by which beneficiaries receive estate assets.
What Is a Will?
A will allows your client to leave instructions for the distribution of their property after death. The first thing that a will accounts for is the naming of an executor.
The executor of an estate is responsible for upholding the terms specified in the will. Often, a client names their lawyer as the executor of their estate.
A will allows for the specification of guardianship for minors, dependents, pets, and property. For clients that don't want their estate transferred to their closest living relative, a will ensures that custody of children, pets, and property goes to the right individuals.
The final action of a will is to decide the manner in which a deceased client's outstanding taxes and debt is handled.
A will provides instruction to the transfer of guardianship of a clients estate and dependents. It does not, however, place terms or conditions on the transfer of guardianship.
What a Will Does Not Do
A will does not allow clients to place contingencies on gifts to their beneficiaries. A client cannot, for example, gift their car to their sibling - as long as they divorce their spouse. A will, also, does not serve to establish instructions for your clients funeral.
The only thing that a will serves to do is to establish instructions for guardianship and who gets what. The "what" being assets, property, custody, and debt.
A will serves to dictate any individuals your client wishes to disinherit, as well. This allows your client to circumvent legal beneficiaries for any reason. For example, your client can disinherit their irresponsible grandson, in order to refrain from fueling their destructive habits.
A will is your client's opportunity to ensure the long-term safeguarding of their most valuable possessions, through awarding or withholding assets from individual beneficiaries.
Advise your client against a DIY will. A legal professional is the only one who can create a legally iron-clad will that holds up in probate court.
What Is a Trust?
Trusts serve a range of functions in estate transfers. If your client wants to establish conditions by which awards are distributed to their beneficiaries, they set up a trust. A trust is, either, revocable or irrevocable, and, living or testamentary.
A testamentary trust is set up through your client's will to provide terms for the transfer of assets after their death. A testamentary trust goes side by side with a will.
A living trust circumvents probate court in the event of the trustor's death. Unlike a will, a trust acts as the final ruling over the beneficiaries of your client's estate. When a living trust is established, the client decides between a revocable or irrevocable living trust.
A revocable living trust only goes into effect after the trustor's death. While the trustor is alive, they can alter the terms of the trust while maintaining ownership of their estate. An irrevocable trust is unalterable once established.
Your client names a trustee to facilitate the distribution of assets after their death, similar to an executor of an estate. A trustee, however, can be a clients family member or friend, as a trust operates outside the courts.
A valid trust consists of a trustor, a trustee, successor trustee, and beneficiaries of the trust.
The successor trustee serves as a backup to the trustee in any event. Establishing a trust lets your client avoid paying for a probate attorney and court fees. Assets transfer seamlessly and privately to the beneficiaries of a trust.
Factors to Consider for Your Client
If your client is interested in establishing a living or testamentary trust, talk to them about the pros and cons. The pros include more control over how their assets are distributed, as well as the ability to amend terms of the trust during their life.
The drawback to creating a trust is the upfront expense that it incurs. And, since trusts operate outside of probate court, it takes more effort for your client to set it up.
Attorneys receive between $1,000 and $2,500 to create a living trust. The cost depends on whether the trust is on behalf of an individual or a couple. Individual circumstances, such as assets, debt, and other ambiguities fluctuate the attorney cost.
The need for a will depends on your client's estate value and local probate law. If your client lives in a state with easy-to-navigate probate law, recommend creating a will. If they have a large estate that exceeds the states estate tax threshold, a living trust is necessary to set up tax provisions.
Does your client have children or dependents? A trust allows your client to limit the children's access to their inheritance until prespecified terms are upheld. For example, a trust can serve to restrict access until they turn a certain age, complete a specific milestone, and more.
Will vs Trust: Final Thoughts
A will is provisional for assets left over after the client's death. A trust holds assets during the client's life. A will does not hold assets, whereas, a trust does hold assets.
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