Creating a Trust in Your Will vs. Creating a Living Trust: Part 1

You’ve likely heard that trusts can assist families in avoiding probate court and safeguarding assets for their loved ones. Perhaps you’ve even consulted a lawyer who suggested incorporating a trust into your will. It seems like a solid solution, but what many people overlook is that a trust established in your will functions quite differently from a living trust that you set up today, and this distinction can significantly affect your family when you pass away.

Both types use the term “trust,” which can make them appear alike. However, the experience your family will encounter after your passing is entirely dependent on the type you select. More crucially, these different methods aim to achieve different objectives, and grasping what you genuinely want to accomplish is the key to making the right decision.

In this two-part series, we will guide you through the specifics of what each type of trust entails and how to select the method that aligns with what is most important to you and your family. In Part 1, let’s explore what occurs when you establish a trust in your will and assist you in assessing your true goals.

What Occurs When You Establish a Trust in Your Will

A testamentary trust, which is established in your will, only comes into effect after your passing and once your executor has completed the necessary court procedures to set up the trust. Your will might include a statement like, “upon my death, I instruct that my assets be held in trust for my children until they turn 25.” This clause provides a level of protection by determining when your children will receive their inheritance. However, it does not prevent your family from entering the court system.

All wills are required to go through probate court. Thus, when you pass away with a will that includes trust provisions, your family must navigate the probate process before the trust can be established. This procedure can take several months, or even years. During the waiting period, your assets are essentially frozen, which could leave your loved ones in a precarious financial situation.

Here’s an overview of the probate process:

● Your family must first find your original will and submit it to the probate court.

● The court will then formally appoint your designated executor, who is responsible for informing all potential heirs and creditors about your death.

● Your executor is tasked with collecting all your assets, having them valued, settling your debts and taxes, and preparing comprehensive accounting reports for the court.

● Only after the court has reviewed and approved all of this can your assets be allocated into the newly established trust, which also requires the judge’s approval.

Your family might encounter considerable expenses. Probate includes court filing fees, legal fees, appraisal costs, and occasionally accounting fees. These costs are deducted from your estate, diminishing what remains for your loved ones. In numerous states, attorney and executor fees are determined as a percentage of your estate’s worth. Additionally, since probate is a public court procedure, anyone can view details about your assets and beneficiaries.

What truly matters is that you’re essentially doubling your efforts to reach the same result that a living trust could provide, but with increased costs, a longer duration, and a much higher chance of family disputes. You’re establishing a trust that offers the same safeguards as a living trust, yet you’re compelling your family to navigate a complete court process first. And that’s just part of the issue. Since a will only becomes effective upon your death, it creates a significant gap in protection while you’re still living.

What a Will Can’t Do While You’re Still Alive

A will only becomes effective upon your death, which means it offers no protection if you become incapacitated beforehand. Most individuals depend on a Power of Attorney, or “POA,” to permit someone to handle their finances if they are unable to do so. However, there’s a significant drawback: a POA ceases to be valid the moment you pass away.

This creates a perilous gap. The instant you die, your POA’s power vanishes — yet your executor has no authority until the probate court formally appoints them. Accounts are frozen, bills remain unpaid, and your family cannot access anything while they wait. A living trust completely removes this gap. Since it is in effect now, your successor trustee has continuous authority to manage your assets during incapacity and smoothly upon your death — no court approval needed, no delays, and no financial uncertainty for your family.

All of this leads us to the crucial question: what are you truly aiming to achieve? The gaps we’ve just discussed – probate delays, frozen accounts, the POA cliff – are not unavoidable. They arise from selecting a planning tool without first clarifying your actual objectives.

What Are You Really Trying to Accomplish?

Before you can choose between a testamentary trust and a living trust, it’s important to clarify your objectives. Many people are aware that they want “a trust” because they’ve heard that trusts are effective planning tools. However, the purpose of trusts varies based on their structure.

Is your main aim to avoid probate court? If keeping your family out of court is a priority for you, then the way you establish your trust is crucial. A testamentary trust does not prevent probate, while a living trust does. If avoiding probate is your primary concern, this factor alone could influence your decision to set up a living trust.

Are you looking to control how and when your beneficiaries receive their inheritance? Perhaps you have young children and prefer that they do not inherit everything at the age of 18. Both testamentary trusts and living trusts can meet these distribution objectives. From the perspective of distribution control, both types of trusts can be designed similarly. However, keep in mind that assets will not be accessible to your children during the probate process, so if access is a concern, a living trust might be the better option.

Do you wish to safeguard your assets in case you become incapacitated before your passing? This is where the timing of trust establishment plays a vital role. A testamentary trust only comes into existence after your death, meaning it provides no protection while you are alive. If you are unable to handle your affairs, your family would have to seek guardianship or conservatorship through the court. In contrast, a living trust enables your designated successor trustee to take over and manage your affairs without needing court involvement.

Grasping your genuine priorities aids in determining which strategy is most suitable. If your objectives are solely focused on managing distributions and you have no worries about probate expenses or delays, a testamentary trust may be adequate. However, if you seek to avoid probate, ensure incapacity protection, or gain immediate access to trust benefits upon your passing, then the timing of establishing the trust becomes extremely significant.

In the upcoming week, in Part 2, we will delve into how living trusts function and assist you in making the final choice regarding which strategy aligns with your needs.

How We Assist You in Recognizing What is Most Important

Our emphasis is not on the documents themselves, as we view them as a result of effective planning. The planning process begins with clarifying what is truly important, which is why our Life & Legacy Planning process initiates with education and understanding during a Life & Legacy Planning Session. In your session, you will gain clarity on what would genuinely occur for your family in the event of your death or if you become incapacitated. We will explore the actual costs, the genuine timeline, and the real experiences your loved ones will encounter. Subsequently, we will pinpoint your genuine priorities, enabling you to make a well-informed decision and develop the appropriate plan for yourself.

Schedule a complimentary 15-minute consultation to learn more.

This article is a service of Kristen Wong of Seasons Estate Planning, APC, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life & Legacy Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning Session™.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.