Estate Planning 101: Should I have a will or a trust?
Estate planning is often a difficult decision to make. However, making such decisions before you pass saves a lot of headaches and trauma for your next of kin.
One of the toughest decisions for clients is figuring out whether they need a will or a trust. The biggest difference between a will and a trust is how each handles and distributes your assets. A will must be probated whereas assets held in a trust do not have to go through probate.
Dying intestate, or without a will, forces all of your assets to go through probate and to be distributed according to Missouri Intestate laws. Typically, if there is a surviving spouse, your spouse will get the first $25,000 of your estate, plus one half of the balance of the estate. If there are children, they will get the other half of the balance. Without a will, your spouse could easily not get the entirety of your estate! Making a will allows you to specify who gets what of your estate. However, the will does not avoid the costly and time consuming probate process.
In order to avoid probate, one would need to either use the Missouri Non-Probate Transfer Laws, and transfer all of your assets via transfer on death documents, or to set up a trust. Transfer on death documents, although handy, can be problematic in three ways: 1) they do not provide for contingencies when your plans to transfer the asset to your heir goes awry because of the death of an heir; 2) they may expose your heirs to losing any State support that they might be receiving at the time of your death; and 3) the asset, which could be anything from a house to an IRA that you worked your entire life to build, if given to a minor child, will go to their guardian until they turn 18 when they will inherit the entire asset, no matter how big.
The above problems can be solved through creating a trust. The trust is ran by the trustee, who, in most cases, is yourself at the beginning and then someone that you designate to take over if you become incapacitated or pass away. The trustee’s job is to hold the assets in trust for the benefit of you and your designated beneficiaries and to distribute such assets after you pass. The biggest benefit of the trust is that it saves the costs and time of probating a will, because, instead of the courts distributing your assets, the trustee will distribute your assets according to the terms of your trust. This also solves the problems of the transfer on death documents. For example, you can provide for contingencies in case any of your beneficiaries predecease you; you can draft terms in your trust to limit the amount your trustee can distribute at once to any beneficiaries receiving state benefits; and you can draft terms that state at what age a beneficiary may receive an asset.
The trust can be settled in a few weeks after your death, whereas probating a will can take several months. Probating a will can also cost a few hundred to a few thousand dollars, even if there is no will contest. A will contest, which happens if somebody entitled to receive a portion of your estate under the Missouri Intestate statute is then left out of your will and sues to contest the will in order to receive said portion, can last for several years and can reduce your estate to almost nothing.