one for the benefit of a third party. Unlike wills, a trust can be used during a time of incapacity and it also can exist
well beyond. It also provides control over your assets following your death in a way that a will cannot guarantee.
There is often confusion about whether a trust and a will are both needed. There are benefits to both documents (as
noted in the table below), and in many cases, people have both in place for their estate plan.
WILL
TRUST
Allows control of assets and directives during incapacity and after death
NO
YES
Avoids probate and courts (including property in other states)
NO
YES
Manages assets for minor/special needs children
NO
YES
Can reduce estate taxes
NO
YES
Ensures privacy
NO
YES
BENEFITS OF TRUSTS
AVOIDING PROBATE
Upon death, a will is submitted for probate, the legal process in which it is reviewed by a local court to determine
whether it is valid and authentic. When someone dies, there is no longer anyone to manage personally-owned assets. Probate serves the purpose of making sure creditors are paid and that assets are distributed to the correct
beneficiaries as determined by your will. If you die without a will in place, you are considered to have died intestate,
and the distribution of your assets will be based on your state’s intestacy laws.
Probate expenses can range from hundreds to thousands of dollars depending on the complexity of the estate and
whether or not there is a will in place. But often, the bigger issues identified with probate are the lack of privacy (your
will becomes a public court document) and the delay in administering your estate. The probate process itself can
take months or years, also depending on the complexity of the will or estate or potentially any challenges to the will.
However, there are a few ways to avoid probate.
• Assets that are subject to a beneficiary designation (such as life insurance, retirement accounts, etc.) will pass to
the named beneficiary (as long as the decedent’s estate isn’t named as beneficiary) without probate.
• Assets that are co-owned with a right of survivorship (typically those titled as joint tenancy or tenancy by the entirety) will pass automatically to the surviving co-owner without probate (for example, a home owned by a married
couple with a right of survivorship).
• Assets titled to a trust do not go through probate. Trusts have the benefit of avoiding probate and its associated
public exposure, expense and time. However, trusts avoid probate only for assets that are transferred to the trust
before death; for assets that allow for a beneficiary designation, the trust can be named as beneficiary, or an individual can be a direct beneficiary.
• Having a pour-over will can account for any assets that are missed and were not transferred to the trust.
The will can specify that those assets are to be transferred to the trust at death.
TAXES
Ordinary taxes can be a confusing subject to the layperson. This is also true when talking about estate planning and
taxes. Although the federal estate tax exemption for 2014 is $5,340,000 per individual ($10.68M for married couples), you could be subject to state-level estate or inheritance taxes, many of which have much lower exemptions.
A recent article noted that there are 19 states and the District of Columbia that impose state-level estate taxes; some
tax estates at $1M or less. The largest exemption is Delaware at $5.25M, while Iowa currently allows no exemption
to its inheritance tax. If you may be impacted by estate taxes, there are trust strategies that can help you avoid excessive taxes.