Attorney Thomas B. Burton explains how to choose between a Will and a Trust when you are putting together an estate plan for your and your family. At our office many people ask us whether a Will or a Trust is right for them. There can be many different answers to this question, but in this video Attorney Burton will walk you through the steps to decide whether a Will or a Trust is right for you and your family. There is no one size fits all answer to this question, rather it depends on your family situation, your budget, your goals, and your specific mix of assets. Tune in to this video to decide for yourself whether a Will or a Trust makes sense for you and practical tips on how to choose between a Will and a Trust for your own estate plan.
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Welcome back, I'm Attorney Thomas Burton and in today's video, we're going to be covering one of the most popular questions I get asked here in my estate planning practice!
So for those of you new to the channel, I'm an estate planning and asset protection attorney here in Wisconsin and I use this channel to educate and inform the public in order to inform you to take charge of your own estate planning.
So today's topic is going to be 'How to Choose Between a Will or a Trust' and like I said, I get asked this question a lot and if you've seen any of my other videos, you may have heard some variation of an answer I give, where I say it depends and the thing it depends on mainly is your mix of assets and your goals.
So from the top, I want to make clear that to me is what should drive the conversation with your attorney about whether a will or trust is right for you.
Now, to be fully transparent, at my office, I often favor trust planning for people, just because of the variety of benefits a trust can bring to people such as the ability to avoid probate court completely, the costs and fees, provide incapacity protection and provide for minors or people who later may have special needs. So there's so much we can do with the trust. I like using them, they're a great tool and we use them often. That's my general, after examining all the different approaches and seeing what clients come to me with and often, there's horror stories, often they come in the office and I'll ask what are your goals today and they'll tell me, they had a friend or relative recently died and they went through the probate process and they never want their family to have to go through what they did, something along those lines. So that's what I hear, a lot of the stories on the back end about probate but today's video, I'm going to run you through these factors to think about when examining your own assets in a state and then you can look at your goals and decide what's important to you, when you're deciding, "do I think a will or a trust is the right vehicle for my estate planning?"
So I think visually and today I put together my yellow legal pad and I've got two columns here - will and trust! Generally, the will is going, the upfront costs are going to be cheaper to set up a will plan. The basics of a will plan are going to be a will and then I would recommend pairing it with a durable financial power of attorney and a healthcare power of attorney. Now you can do a lot of things into a will, make them longer and complex but in general, a will plan, my will documents are going to be shorter and less comprehensive than a trust plan. A trust is going to cost more upfront because we have more documents to put in place, more work on the front end to avoid all the probate court costs later.
Now if you choose probate court plan to spend three to five percent of your estate, now this is a general rule of thumb, it can be more in your state or perhaps slightly less, you might want to say three to six percent, in some places but three to five percent is probably a general rule of thumb. So if you think about your estate, the more you have that amount adds up to be more and the thing with trust is, they cost more up front but the more you have, they don't necessarily cost more and more and more. So you get more value out of a trust plan, the more assets you have passing through probate because you're avoiding all, excuse me, bypassing probate, you're avoiding those probate court fees on every asset. So in Wisconsin, they assess that inventory filing fee on all probate assets and the more you have, the higher the fee goes. Then of course, you pay your lawyer and things like filing the tax return, administration expenses, the realtor etc. out of the probate court costs, excuse me, those are probate costs but you need to think about all those fees involved in administering the estate. So and the realtor, if realtor if you're selling real estate, you're going to pay them either way, if you choose to hire a realtor, that's up to you. So those are separate fees but three to five percent for probate court costs.
Next, you want to think about do you favor public administration of your estate or private? So this is where I see, a lot of confusion as well. A will, by definition, it's private during your life because you can change or revoke it but after death, it becomes public and must be filed with the probate court. So if you have anything in there or a family situation, you don't want becoming public, after your death, a will plan is not going to be a good plan for you.
A trust by contrast, is a private administration, the trust document is private between you and your trustee which is often you and then a successor trustee you name and it remains private after death. There's no requirement to file the trust with the probate court. So the people who generally have the ability to see the trust, after you're gone, would be your trustee and your beneficiaries.
Now next, think about the time you want to spend administering your estate. Probate court by statute, takes six months to two years and I would say six months would be a very simple probate and also mean that, you got that paperwork together extremely fast to file with the probate court. For a trust, I would plan to spend 6 to 12 months and it could be even less depending how ambitious your trustee is and how quickly they want to get to this after your funeral. I've heard people and had questions come in where they have all the assets were in the trust, they were properly titled and they can complete the wishes of the grantor, the person who made the trust within a couple months and wrap up the trust very quickly. Then all that remains is to file the final tax return if there was a tax filing requirement, if the trust had more than $600 in income but often some of these trusts, if they just distribute the assets quickly, they don't even need to file an income return for the final year. So again, a trust administration, much simpler after you are gone, can be done faster, it depends on the time frame of your trustee.
So just to highlight, will plan - upfront, cheaper, later it's going to cost you more, likely to go through probate.
Trust plan - a little more plan to spend more upfront to set it up, avoid probate later, then it's up to you whether you like the public administration, private administration and the time.
Those are some of the key considerations.
Now, next, in terms of people often ask me is there a number where I should have a trust or will and there isn't any one number but I can tell you the number the state of Wisconsin sets for what they call a small estate and that number is $50,000. If you have $50,000 or more in probate assets, you must go through the full probate court informal probate process. If you have $50,000 or less than probate assets, there is what's called a small estate transfer process, it still takes some paperwork, often work with a lawyer but it's simplified and usually doesn't cost the many thousands of dollars hiring a lawyer to do a probate court process would do. We can get a small estate process done, maybe more like between $1,000-$2,000. So if you have under $50,000 in probate assets, meaning you don't have a lot of assets at all, it's possible your heirs could use that process. Now if you have above that probate court assets, the limit by statute is $50,000, so I didn't make up that limit, that's what's in the Wisconsin statutes and each state, most states have some variation of the small estate limit and you'll see it vary around there, often between that $50,000 to $100,000 range. I haven't looked at all the states but what they'll say, if you have a very small estate, we have a simplified process, above that, you got to go through probate court.
So keep that figure in mind as we go through this.
Now look at your mix of assets and if you don't have what our traditional probate assets, maybe you can get by with a will and doing some other planning such as payable on death accounts, on your bank accounts. Let's say you have one child and you want it all to go to them. That's a classic case where maybe you could use a will and payable on death accounts and still avoid probate. If you don't own any real estate because real estate is often what pulls you into probate if you have $50,000 or more in assets and if you have only one child, I can see using payable on death accounts because there's not as much likelihood for a fight over what happens. The more people you have, I don't like using payable on death or transparent death things for real estate, it can lead to disagreements among joint owners and even financial accounts, it can get unclear and messy fast but look at your mix of assets. Do you have real estate - it often pulls you into probate, if you have more than $50,000 equity financial accounts. You can use payable on death beneficiary designations but you have to make sure you have them filled out correctly. That's why, if we have a trust, we can always name the trust as either the primary or the backup asset, in case someone pre-deceased, it would still flow through the trust and get to the people you want and then personal property, personal property is going to go through probate but with a trust, we can assign it all to the trust and avoid personal property going through probate and this is the stuff you think of as being in your house, furniture, clothing, jewelry and for a lot of people, tools and such in their sheds and often this is the stuff that gets to be a lot of work to deal with in a probate court process because you're trying to assign a value to a shovel and a rake and an old lawnmower and things like that because the probate court wants their cut of the fee. So they want to know the value and often people don't really know the value to something you have and you wouldn't know the value till you have an auction. So this type of stuff can be very time consuming for your personal representative to deal with and where you can really save them time and expense by avoiding probate.
So as I've mentioned, Wisconsin - $50,000 is the limit on a small estate, over that you're gonna need to go to probate court, informal probate. A trust, we don't have any limit on the amount of assets we can pass through a trust and avoid probate. So that's a great thing and until you would run into the current federal exempt in 11.7 million dollars per person, you can still keep passing assets through trust but beyond that, you should do some perhaps tax planning because you're gonna run into the estate tax north of 11.7 million dollars but for many people, that is not even close to the value of their estate. So they don't really need to worry about estate tax issues under current federal tax law. It applies to some people but not the vast majority.
Now, your goals, I talked about them earlier. Here I have listed some possible goals which would lead you to each plan let's start with the will first. Let's say you don't have a lot of money to spend right now and you want to spend less up front and you have a relatively small estate, maybe you have a little more, maybe you have 150,000 probate assets or maybe you have a little more than that but some of them are in, anyway, you just don't want to part with as much cash to set up a trust and I can understand that, so you want the simple plan for a small estate, generally, most lawyers are going to cost less to set up a will plan, takes less time. So you want to spend less up front and if it ends up going to a probate, you figure it's okay to spend more of these day at that point because you won't need the money anymore. That's a perfectly fine choice to make and one you can do and where I see often people in this situation too is younger people in life, they know they want an estate plan often to name a guardian for minor children but they don't want to part with a lot of cash up front because they're busy trying to work hard and accumulate assets and they need an estate plan that works for them, for the next 10 to 20 years. I try to put plans in place that will work for the rest of your life but the goal is to get you at least 10 to 20 years of coverage from this estate plan and you should always re-examine it every five years, examine your family situation, what's happened but if you get at least 10 to 20 years out of it, you're getting good value and, let's say you're this younger family here. So you need the guardian, you've got a little equity in the house, approaching maybe that $50,000 but you want to get that plan in place for the miners and then maybe you'll graduate to a trust plan later in life as you get more assets because you understand that the savings, you get more savings from the trust plan, the more you have avoiding probate court, the fees, you keep them lower by avoiding it all completely whereas more assets going through probate, more court costs.
So that's traditionally a very common way to look at it and one I can't disagree with.
Now if you're already later in life and you have no estate plan at all, then I would look more at what plan is likely to be my last plan and if this is my last plan then you think more about what's going to make it easier for my heirs and in that situation, it's often a trust plan going to make the administration easier. So on the trust column, let's say here's goals - I want to avoid probate on all my assets, I want to save time and money for my heirs, I want to simplify the administration of my estate, so I want to make it easy for my son or daughter or friend or a relative or husband, spouse wife, I want to leave a legacy meaning I want to leave money that helps others and I want to keep everything private. I've lived my life privately, I want after death to be private too. I don't want it in the court records or in the paper and also I want to provide flexibility for heirs such as a special needs trust, in case a grandchild ever had special needs, it wouldn't disqualify them from government benefits. I want to have a trust for minors, if a grandchild, if one of my children pre-diseases, I would like it to go to their children but be held for them until a certain age and let's say, I want to choose that age, I want them to get half at 22 and half at 25, instead of all at 18, things like that and I want incapacity protection to protect against a potentially expensive and embarrassing guardianship proceeding because without incapacity protection as you get older, if you need care over your finances, your loved ones would have to pursue a court-ordered guardianship which similar to a probate, involves lawyers, lots of time and lots of fees, plan to spend several thousand dollars. So avoiding probate, providing for a legacy, save time and money for heir, simplify administration of an estate, keep everything private, these are all the type of goals to think about and why you would want to set up a trust plan. Now, younger people can have those same goals and if they have a good amount of assets, a trust can make sense for them as well. Particularly I think of business owners, people who have assets that would cost more passing through probate and they want to simplify it for their spouse and children. So there's lots of reasons, there's no age limit on setting up a trust. You can set up a trust whenever it makes sense for you, I'm just telling you about what I see in general, often people with less assets think about the will plan or their first plan, if they're young, is a will plan and they graduate to a trust plan. People, middle age, later in life, if they want this plan to, if they have no plan, never done a plan, the trust plan is a good choice because it's going to give you the most flexibility to grow with you over life and if something should happen, to ease the administration after you're gone.
So again as you can see, how to choose, it's not just simple, it depends on your situation and your goals and these are some of the factors I think about, when meeting with a client when I'm talking with them about their goals and what they want to do and I'm always upfront about the fees because it's, if everything costs the same, maybe you would, everyone would say I'll just do the trust plan, right but it does cost a little more. So you want to think about does it make sense for me! Now for many of my clients, a big majority, it does make sense because of all the cost savings and fees and the avoidance of hassle with probate court but you need to make the choice in whatever lawyer you're meeting with, think it through and decide what makes sense for you.
So I hope this video has been helpful, a list of factors you can think through when evaluating your own estate. I always advise you meet with a lawyer, work with a qualified estate planning attorney, who understands and will listen to your situation and go through a similar analysis when helping you decide. Now one last thing I'll mention, if you're interested in more on this because I get this question a lot, I have a one page guide I created, it's sort of a decision tree with some of these factors and I'll put a link to that in the video below, if you want to get a copy, click there, enter your email and it'll get sent to you and I created this because like I said, this question is very popular at my office and sometimes, as you can see, lawyers can be verbose, use a lot of words and this one page guide helps you break it down into more of a visual, do I want this or do I want this.
As anything, it's not a complete solution. It's simply trying to take like I said this complex video, these different factors and break it down on a one-page easy visual for you.
So I hope this video has been helpful to you. If it has, please consider giving it a Like, so others can see and benefit from this information as well.
Thanks for watching and we'll see you next time.
© 2021 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.