“What’s the difference between a Trust and a Will?”
“Is a Trust better than a Will?”
“Rich people have Trusts. That makes them better, right?”
If one or all of these questions have crossed your mind, you’ve come to the right place.
Estate planning can feel overwhelming. There’s all the intimidating legalese (we promise you’ll find none of that here), and then… you have the choice between questionably valid information you find on Google (none of that here) or paying big fees to get your questions answered (again, none of that here). That’s where we come in—with clear and accurate information to help you feel informed and in control as you make your estate plan.
By the end of this guide, you should have a good sense of whether or not you want to create a Trust in addition to having a Will. If you’re still not sure, answer our online questionnaire, and we’ll help guide you toward the right estate planning documents. As you’ll hear us say time and again, putting something in place is better than nothing - so if you’re not sure what you need, it’s always a good idea to get a Will in place as a starting point.
Every grownup should have a Will. This is especially true if you’ve recently gone through a major life change like getting married, having children, or getting divorced. Having an up-to-date, legally valid Last Will and Testament is a little like keeping a fire extinguisher in the house. It’s just good practice as a responsible adult.
The most important thing you can do when creating an estate plan is to put something in place. Done is better than perfect. You can always start with a simple Will and update it later. If you decide that creating and funding a Trust makes the most sense, you can always create one. In that case, you’ll still need a “Pour Over Will" (a shorter form of a Will, more on that later).
The biggest difference between a Will and a Trust is that a Will takes effect after you die, whereas a Trust takes effect as soon as it is created and funded.
A Will (formally called a Last Will and Testament) provides legal instructions for the division and distribution of assets in the event of someone’s death and, in the case of parents with minor children or other dependents, legal guardianship. A Will also appoints the person who will manage asset distribution. That can be a friend, family member, legal counsel, or financial advisor. A Will can be broad or specific, depending on your wishes. Do you want to list a charity as a named beneficiary? You can do that. In fact, you can even make provisions for pet care.
A Trust is a legal document that lets your loved ones bypass probate for assets and guardianship, as outlined in the Trust. There are many types of Trusts. At Duckpins, we focus on a Revocable Living Trust (also called a Revocable Trust). Like a Will, a Revocable Living Trust can be changed or canceled at any time during the lifetime of the person who created it. A Trust can help your loved ones manage your assets efficiently. One important caveat: a Revocable Living Trust only works if you fund it, a step many people unfortunately overlook. Funding a trust involves transferring ownership of all of your most significant assets to the Trust.
Here’s something many people don’t know: Wills can include other forms of Trusts. For example, in Duckpin’s standard Will, we include a “Children’s Trust” for any parents or guardians of minors, that allows you to manage how assets are left to and managed for minor children. This is referred to as a type of Testamentary Trust.
Determining which legal documents you should create depends on your personal estate planning needs. At Duckpins, we guide our Washington customers to choose whether to go with a Will or a Revocable Living trust based on three primary considerations.
In Washington state, probate—the court-supervised process of transferring assets after death—is pretty streamlined and efficient (and relatively low cost). So, if you only own property in this state, using a Revocable Trust for probate avoidance isn’t a compelling enough reason to create one for most people. However, if you own property in more than one state, you’ll have to go through probate in each state where you own real property. In this case, choosing a Revocable Trust can save time, cost and headaches.
Revocable Living Trusts can make it easier for your successor trustee to take over the administration of your assets and begin getting them into the beneficiary’s hands. Whereas the Personal Representative of a Will needs a Court Order to start the asset distribution process, which can take time, a successor trustee under a Revocable Living Trust can begin acting as trustee almost immediately. If speed of asset distribution is very important to you, that can be a good reason to choose a Revocable Living Trust over a Will.
While Revocable Living Trusts provide a quicker, more seamless transition to beneficiaries, allowing you to bypass probate, Trusts involve more complexity and cost when establishing and administering them during your lifetime. You will have to transfer most of your existing assets—like your home, bank and investment accounts, and major assets—to the Trust for it to be valid. That can take time and money. You’ll also have to transfer any future assets to the Trust if you want them to be governed by the terms of the Trust. If you’re considering creating a Living Trust, you want to be sure you’re okay with the added cost and complexity.
There are a lot of misconceptions about what benefits a Trust does and does not offer. Let’s get clear on what you can actually expect if you decide to make a Living Trust part of your Estate Plan.
One of the most common estate planning misconceptions is that a Revocable Living Trust is better for tax planning purposes. In reality, Revocable Living Trusts deliver no tax protection on their own (but other types of Trusts can help with tax planning). If tax planning is a key concern, you can achieve your goals with either a Will or a Revocable Living Trust, depending on your circumstances, and your estate planning will need to include other types of Trusts and tax planning. So if your main reason for choosing to create a Trust is for tax protection, it might be worth a second thought.
If you choose a Revocable Living Trust, you still need what’s called a “Pour Over Will.” This type of Last Will and Testament captures any assets that haven’t been formally transferred to your Revocable Living Trust and therefore fall out of its scope. All Duckpins’ customers who create a Revocable Living Trust also create a Pour Over Will.
Many people are under the impression that a Revocable Living Trust offers more privacy in how your estate is divided and distributed, as Wills are a matter of public record. This used to be the case, but newer laws around notifications to people affected by a Revocable Living Trust have diminished the privacy benefits Trusts used to offer.
One important thing to keep in mind is that estate planning laws vary by state. This post was written based on estate law in Washington state. If you’re reading from a different state, we recommend checking with state-specific legal resources that can address any legal nuances you may need to know about.
Create an account with Duckpins to get started making your estate plan today. We make it easy for Washington residents to create and store life’s most important documents. From a Will and/or Revocable Living Trust to Power of Attorney and Release of Medical Records, we can help you get your ducks in a row.
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