Wills Vs Trusts
Wills are the cornerstone of estate planning, but they aren’t the only tools to consider. We’re often asked what the difference is between wills vs trusts. The truth is: one does not replace the other. They’re often both needed in conjunction with one another.
Wills between married couples at their most basic form are referred to as simple wills. Estate planning attorneys have also nicknamed them “I love you” wills. That’s because we often see them as more of a gesture of love than an advanced estate planning tool. A simple will basically states, “When I die, I leave everything to my wife. Or if she dies first, she’ll leave everything to me.” After all, that’s what marriage is: an equal partnership, right? Not necessarily (at least when it comes to smart estate planning).
Now let’s look at the consideration of wills vs trusts. If you own more than $500,000 in assets, simply leaving your spouse everything in a will can have undesirable consequences. Couples who own a home and have some retirement savings and other investments built up will easily surpass this threshold. That’s when trusts become useful. While a will simply lays out distribution of property wishes for after you pass away, trusts can help ensure that:
- Certain taxes can be lessened or avoided altogether.
- Probate on certain assets is avoided.
- Estate details can be kept out of public record.
- A plan for managing assets can be laid out for incapacitation (not just after death).
- Very specific restrictions can be placed on how the assets are distributed, even after you’re gone.
While setting up trusts has an upfront cost, that price is much smaller than the price your family could potentially pay by relying on a simple will alone. Here are some specific considerations when it comes to wills vs trusts:
- Nolo estimates probate expenses (attorney and court fees) can cost up to 5 percent of an estate. For an estate worth $2 million, that could be up to $100,000. The cost of administering a trust this size will cost about half that amount.
- A $5 million Illinois estate with a single owner is subject to about $352,158 in federal and state estate taxes in 2011. Often, trusts can be structured to eliminate the estate tax altogether.
For more information about wills vs trusts, read When a Will Is Not Enough.