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The Difference Between Wills and Trusts

A Last Will and Testament (Will) and trusts can both be great estate planning tools. However, they also each have specific limitations, advantages, and drawbacks. As a result, they are not necessary or even useful for every estate plan. Individual estate planning goals, financial situations, and personal preference will often determine whether a will, trust, or both should be used. If you are considering your estate planning options in Florida or Minnesota, contact Roulet Law Firm, P.A. to learn more about how our experienced estate planning attorneys may be able to help you understand your legal options. Call our Florida office at (941) 909-4644 or our Minnetonka, Minnesota office at (763) 420-5087 for more information or to schedule an appointment.

What Is a Will?

A will is a legal document that tells a probate court judge who you want in charge of your affairs and who you want to receive your assets after your passing. A will requires that certain drafting obligations be met to be valid in either Minnesota or Florida. For example, individuals must be of sound mind to create a will, and the will may need to be witnessed by a third party. Minnesota law and Florida law require two witnesses in most situations.

What Is a Trust?

A trust is created by legal documents often referred to as trust documents. A trust can be used in life as well as in death. The trust names a certain person, a trustee, to maintain assets according to specific rules and restrictions that the trust documents provide. The trust can be a separate legal entity that owns assets.

Trusts are created in favor of beneficiaries. Much like a will benefits heirs or others named in the will, a trust will distribute assets to the beneficiaries. There are often more restrictions on how assets are distributed to beneficiaries in a trust compared to a will.

What Are the Disadvantages of a Trust?

One of the main drawbacks to a trust is that it requires some additional cost and time to create; although the overall costs tend to be less than a will-based plan as a trust can avoid the expenses of probate. It must also be maintained by ensuring assets are properly moved to the trust. The trustee also has obligations to the beneficiaries, which means that they have specific recordkeeping and reporting requirements that must be met. For instance, Florida law requires a report 60 days after the trustee takes their position.

Why Is a Trust Better Than a Will?

A trust might be better than a will if someone wants to maintain control over their assets after they pass. For example, imagine an individual would like to leave a significant amount of money to a granddaughter, but they know the granddaughter has some spending problems. A trust can be established for the granddaughter so that income is only provided at certain intervals or if she meets certain conditions, such as maintaining full time employment. These restrictions ensure that the granddaughter does not spend all of the money at once.

Another major benefit of having a trust is that a trust does not have to go through the probate process when someone passes away. A will must often be probated in court, which is a public and open proceeding that can be expensive and time-consuming. If someone wants to maintain privacy and cut down on costs after they pass, a trust might be a good option.

What Are the Pros and Cons of a Will Versus a Trust?

Wills and trusts are both legal ways of determining who you want in charge and who want to receive your assets after your passing; they are just different paths to that goal. A will usually requires probate to fully administer, while a fully-funded trust can avoid probate. Many individuals opt to use both of these tools as part of their estate plan. You can learn more about using the right estate planning tools for your specific situation by contacting us.

What Does a Trust Do That a Will Cannot?

When assets are transferred to a trust, they do not have to go through probate. Instead, a trustee administers them, which can include distributing those assets to beneficiaries or maintaining them, so the income goes to loved ones. Avoiding probate not only saves time and money in administration costs, but it can also cut down on estate tax obligations in some situations.

A trust also allows individuals to be extremely specific about how they want to distribute their assets. A trust can last years or even decades into the future. Individuals will not that level of control if they allow their assets to past through a will.

What Does a Will Do That a Trust Cannot?

A will can also set out who you would like to be a guardian for your minor children. There is no mechanism in a trust to legally designate guardians; that is one reason why if you use a trust as your estate planning vehicle, you usually have a will as a backup.

It is also sometimes a good idea to have a will as a “catch all,” even if the individual has a trust as well. There might be assets that were supposed to be in the trust but were not transferred properly or fully for some reason. A will serves as a legally enforceable way to ensure that all of property ends up where you intended it to be, even if it is outside the trust.

What Is One Disadvantage of a Will Over a Trust?

A will is a straightforward legal document. It often does not permit the same level of creativity in distributing assets as a trust can provide. Wills are not very flexible and more focused on distributing assets immediately when the will is probated. If you want to ensure that assets are administered years into the future according to a specific plan, a trust may be a good option to meet those goals.

When to Use a Trust Rather Than a Will?

While our office will prepare either a will or trust, or both, depending on your needs, there are four situations where we always suggest clients use a trust: 1) You want to avoid probate; 2) If you own assets in more than one state; 3) You own a small business; or 4) Your estate is subject to estate taxes at either the state or federal level.

You Want to Avoid Probate’

A will does not avoid probate. Rather, a will is a set of instructions to a probate Court judge on who you want in charge and who you want to receive your assets upon your passing. If you want to avoid probate, you should consider using a trust instead of a will.

You Own a Home or Other Assets in More than One State

If you own a home or other assets in more than one state, your family would need to open probate in each state where you have assets. So for example, if you are a snowbird with a home in Minnesota and another in Florida and you passed away with just a will, your family would need to open probate in Minnesota for your Minnesota home and assets and a separate probate in Florida for your Florida home and assets. To avoid that time and expense, you could set up a trust to own all of your assets and avoid probate entirely.

You Own a Small Business

If you own a small business, you do not want to tie up the business while your family works through a probate court. Rather, you should consider setting up a trust so that if anything were to happen to you, your trustee can take steps to continue the business without probate court involvement.

You Have a Taxable Estate

If the total value of your assets puts you above the state tax thresh hold at either the state or federal law, you should consider a trust based estate plan as it can be designed to minimize or even avoid estate taxes.

Learn More About Wills and Trusts in Minnesota and Florida

Learn more about wills and trusts by contacting the experienced Minnesota and Florida estate planners at Roulet Law Firm, P.A. Call our Florida office at (941) 909-4644 or our Minnetonka, Minnesota office at (763) 420-5087 for more information or to schedule an appointment.

And, if you would like to learn how to make it as easy and inexpensive as possible for your family to manage your affairs during incapacity and after passing, while ensuring your assets only go to whom you want and how you want, click here to register for our FREE online masterclass.

And, if you would like to learn how to protect your home and life savings from long-term care and nursing home costs, click here to download our FREE guide Save our Home: How to Protect Your Home and Life Savings From Long-Term Care and Nursing Home Costs.

Chuck Roulet
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Nationally Recognized Estate Planning Attorney, Author, and Speaker