Which is best for you, Trust or Will?

When selecting an estate plan, one fundamental choice is whether to choose to use a Trust or a Will.

Some Estate Planning Objectives will be accomplished by either a Trust or a Will:

• Designating beneficiaries of your trust or your estate

• Designating who is to administer your trust or your estate

• Specific distributions to persons or charities of specific amounts or items

• Drafting special clauses to handle special issues, or specific desires of yours

Trusts have some specific advantages over a Will:

• Trusts can reduce estate taxes

• Trusts can be used to plan how your assets will be administered after you are gone

• Trusts can be used to keep your estate out of probate
• Trusts can be used to plan distributions for beneficiaries that have special needs or beneficiaries on public assistance
• Trusts can keep your estate private
• Want to find out more about trusts?  Visit the page on How Trusts work
• Want to find out more about wills?  Visit the page on Last Will and Testament

Trusts can be used to save estate taxes for larger estates.

Trusts can be used to save estates taxes.  Two basic strategies for savings estate taxes are the portability strategy and the credit shelter strategy.  What asset levels do you need to have to employ estate tax strategies as part of your estate planning?

• Estates over $12.06 Million in 2022 (after 2022 the IRS will add cost of living increases to this amount, if the amount is not changed by Congress).  All estates above $12 Million should be looking at estate tax planning.
• Estates ranging from $5 Million to $12 Million may not be immediately facing estate taxes.  However, Congress can reduce the amount that is allowed to be passed estate tax free.  You may want to consider ways to take advantage of the current larger amount that is estate tax free, to guard against the possibility of future reductions in the $12 Million amount. (Why start considering estate taxes at $5 Million, and not say $3 Million? …. $5 Million is just a projection of possible changes by a future Congress.  However, experience in the last 10 years has seen a tolerance in large segments of the political spectrum for allowing taxpayers to pass tax free amounts in the $3 Million to $5 Million range. The increase in the tax free amount from $5 Million to $11+ Million is a “Trump-era” phenomenon. However, there are no guarantees here, as clients have to predict the future Congressional actions.  Congress could reduce the tax free amount to $1 Million, or even to zero ….. or even raise it to $100 Million).
• Estates not large enough to engage in estate tax planning may deploy a Trust without the estate tax planning special clauses.  The trust may be employed to simplify estate distribution or to avoid probate. Trust have many advantages aside from estate tax clauses.   

Even Estate Plans with a Trust will also have a Last Will and Testament.

When a Trust is employed in an estate plan, there should be a Will also.  Usually, there will be a “pour-over” Will.  A pour-over Will directs any assets that do end up in probate to be distributed over to the trust.  Assets may be left out of the Trust for many reasons, including: 1) assets the client forgets to fund into the Trust, 2) assets the client received shortly before death, and didn’t have time to fund into the Trust, and 3) assets the client deliberately leaves out of a Trust (there are good reasons for some assets to not be put into Trust).

Many different kinds of Trusts

There are many different kinds of Trusts, that accomplish different purposes.  The decision of whether to adopt a Trust, and what kind of Trust, is a very important decision to make during your estate planning.  To find out more about different kinds of trusts, visit our page on Trust Varieties. 

Trusts aren’t for everyone.  

Some assets pass outside probate even without employing a trust.  If your estate contains only assets that pass outside probate, a Will may provide just as many advantages as a Trust for your estate for those assets. Therefore, the advantages of Trusts depends on not only the size of your estate, but also on the composition of the assets of the estate as well.

If a Trust is not right for you, a Simple Will is the alternative

You should at least have a “simple” Will in your estate plan, even if you do not decide to do a trust.  With a simple Will at least you will be able to designate who gets your estate and who you want to handle the administration of your estate.