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Estate Planning 101: Will or Trust - What's the Difference?

Join Attorney Thomas B. Burton on this Estate Planning 101 Tutorial Series! Topic of this video - Will or Trust - What's the Difference? Join me in the latest installation of my Estate Planning 101 series. This video is answering one of the most popular questions I get at my office. I decided it was time to sit down and answer this question in a comprehensive manner in a way that I can share with everyone via YouTube.

So welcome to my class and my new series called "Estate Planning 101." Take out your pencils, settle in and join me for an exciting journey through the wonderful world of estate planning. Want to know what type of estate planning documents are best for your situation? Download a free copy of my easy estate planning guide.

Hello, I'm Attorney Thomas Burton. I'm an estate planning and asset protection attorney here in Wisconsin and today, I want to continue my estate planning 101 tutorial series and this is today's topic: Will or Trust - what's the difference?

So I see this question come up a lot in my estate planning practice, and I wanted to create a little longer form tutorial video, walking you through the differences between these two types of plans, here in the state of Wisconsin.

So I'm going to use my trusty yellow legal pad and walk you through it just as a way of sort of organizing my thoughts visually for you as we go through it today.

Okay, so first of all, you'll see under a trust, if you form a trust plan, you're going to name a trustee. That's the person in charge of taking care of your assets in the trust. So during lifetime, the trustee will often be yourself, if it's a revocable living trust. You and your spouse or your maid or just you, will be the primary trustee. So that's number one, then after you're gone, so think about after your death, we have a successor and that person administers the estate after you're gone.

Now, if we go over here, the will plan instead of a trustee, we have what’s called in Wisconsin - a personal representative. Now some states call this person the executor. So if you hear, you need to name an Executor, under my will, just be aware, in Wisconsin, we call them a personal representative and it means the same thing but unlike a trust, they only take over after your gone, so only after death, okay? This person would begin to act on your behalf and they would again be, you can name a primary and I recommend naming a successor just in case, someone, something happened to your primary. Now, you can name as many as you want, but I always recommend at least two if you're going to go through the time and expense of putting together either will or a trust, I recommend having at least one backup to whoever you name as the primary.

Now, an advantage to the trust plan is that, the trustee begins serving as soon as you form the trust, meaning during life and that again, can be yourselves or you as the trustee, and then a successor and you can also name another backup, we can name as many backups as you like under each plan, but that's key to have in your mind the difference.

So if you hear the word trustee, that’s under a trust plan and if you hear the word, personal representative, we are going to be talking about a will plan, okay?

So now let's turn to the next topic of the difference between the trust and the will. So the big difference, there’s lots of differences, but I'm going to cover the highlights today.

Trust is a private document during life, it's a private contract between you and your trustee and a will is private during your life, but after your death, by statute, it must be filed with the Probate Court, okay? So after you die, everything becomes public that's inside the will.

So that's a big difference. One is private administration and the other is public administration by definition, okay? So if you have a trust plan, the goal is to avoid public court process and if you have a will plan, by statute, by law, it must go through the probate court process. If there's anything in your estate planning documents, that you want to keep more private, consider doing that inside a trust plan because a will is going to get filed with the Probate Court after death. In fact, the statutes say, your personal representative must present it.

So that brings us to the next difference, a trust - we set up the assets in there to avoid probate. So again if you go through the time and expanse of setting up a trust plan, the goal is to avoid probate upon your death. A will plan, by definition must go through probate. So I see a lot of confusion about this. You can't set up a will plan to avoid probate, okay? If you are setting up a will plan, your plan is to go through probate. So there's other ways to plan, to avoid probate but just forming a will is not enough and I've got a handout on this, if you want a copy from my office, I talk about three plans for your estate.

No plan meaning nothing in writing at all. Will plan which is a probate, to go through probate and A Trust Plan, which would be to avoid probate. No plan will plan, trust plan. So the goal, if you do the trust planning, is to have no fees and assets passing under the trust, because they're not going to the government probate court system. There's no separate fees on the total assets, okay?

So that's, if you're doing trust planning with my office or another estate planning attorney, they generally cost a little more upfront to set up, okay? But the goal is to avoid probate and save all that money in probate court fees. So if you work with my office, you'll hear me say if we set up your trust plan, my goal is to have all your assets passed under the trust, so you don't end up paying any probate court fees, okay?

So in Wisconsin, there's probate court fees on all the assets passing under the will. So if you think about everything in your house, the personal property, the value of your house, cars, vehicles, boats, it's all your personal representative has to come up with a reasonable fair market value and list it and then the fees are $200, for every 100,000 in value. In Wisconsin, the fees are not as terrible as some states like California, but the more you have passing in a probate, they add up. So if you think about 500,000 of probate estate, it’d be a $1000 inventory filing fee and that's just the fee to open the estate, okay? That's just the check you write to the probate court to open the administration. There's more fees including attorney fees. Most people, if they haven’t done a probate, professionally before, they will end up hiring an attorney. If you do a probate plan, plan to spend 3-6% of the net assets on all the total fees, okay? Probate court fees, attorney’s fees, tax filing fees Etc. So you can see that as you have more assets, the fees under a will, go up and then you're getting, you're gaining even more value from avoiding probate over here, not to mention the paperwork and the time delay.

So under a will plan, I don't have this written but statutorily, six months is the shortest probate six months and 6 months to 2 years and in a trust plan, I tell people an average, you depending how ambitious your trustee is and what, if you have to sell real estate etcetera you could have it wrapped up in six months or one year for sure, all done and then you only file one tax return.

So moving on, I got off on a little bit of extra content there, the other big difference about a trustee under a will, excuse me, a personal representative under a will, trustees’ fees under your trust, you can set the fee yourself. We often use language saying a reasonable fee but we can also write in exactly what you want to pay them. For example, if it’s a child or something and you just want to put a certain dollar amount, put that right in there. Under a will, the personal representative’s fee is 2% of the net assets and that's set by statute. So again as your estate gets larger, this fee can be quite significant and it doesn't always mean there's that much work, for instance, some estate with a million dollars have a lot of work. Others, let's say, it's a million dollars in bonds if you have that flow through your will, that isn't necessarily very much work. But, your personal representative will still get $20,000 for being the personal representative. So in that instance, I'm not sure, you know, that you need that 2% is equivalent to the reasonable value of the work, right? So think about that talk, to your attorney because you can get, in some ways, a better deal on trustee fees under your trust. And in general, corporate trustees’ like a bank or a trust company, they charge 1 to 2% on asset and this fee goes, the scale goes down as you have more assets. So I've seen the fees schedules from the banks and generally, there's a fee on the first 500,000 or a million and then it goes down from there. So let's say you had two million in bonds. You would pay that 2%, 40,000 to your personal representative whereas over here, it might be 1% or less because that sliding scale, as it goes up. So the more assets you get to, in my opinion, you could get a better service and better fees under trust plan. So just be aware, under a trust, we can set up whatever fees you want to pay your trustee, it is up to you, under a will, it's by statue and that's here in 857.05. You can find it if you just Google it, it's 2%, if you see at the bottom there, I'm not the best at moving my pen with this, 2% on the net fees. So net means less any debts like a mortgage on real estate.

So that's a key difference between a trust plan and a will plan, the fees you pay the trustee versus the fees you pay your personal representative.

So today I wanted to go over some of the differences, the key differences, big differences between a trust plan and a will plan in Wisconsin and specifically, some of these key terms, I see come up like trustee versus personal representative. So as you're thinking about your own estate plan, you can decide which one makes the most sense for you. So this is another part in our estate planning educational series estate planning 101 I call it and I hope you find this video helpful to you.

Now, if you're interested, earlier, I mentioned that no plan, will plan, trust plan, get in touch with the office. You can email me, be happy to send you a copy of that and also if you've seen any of my other videos, I have a ‘Will versus trust’, one-page guide. It’s available from my office, on my website and I'll put a link on YouTube to that guide, in this video that when you can just enter your email and it will be sent to you immediately.

So stay tuned for more on our estate planning 101 educational series.

Thanks for watching and we'll see you next time.

© 2020 Burton Law LLC. All Rights Reserved. Transcript and captions provided for ease of access for the hearing impaired. For questions about this topic, or to suggest a topic for a future blog post, please contact the office.


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