A will is a basic estate document that every adult should have, even if you have a trust. For many households, a will can adequately manage your assets at the end of your plan. However, there are a few scenarios where you will want a trust instead of a will.
Trusts are commonly used to put restrictions on the assets that you’ve passed on.
You can write a trust to only distribute a certain amount of money per year. This is common if you’re leaving money to children, those with special needs, or to those that you think might not use the money responsibly.
Trusts can be very flexible in how they are structured and how they allow payouts.
Another reason to use the trust is to shield that money from creditors money that’s inside a trust is not subject to lawsuits or debt collectors.
So, if the person that’s inheriting the money is in debt or is subject to a lawsuit or is just at high risk for a lawsuit, a trust might be a smart way to pass that money along to them.
Another reason people use trusts is if they own property in multiple states. If you have property in Iowa and Florida for example and do not use the trust your heirs will have to open probate in each state that you own property. Settling the estate in multiple different states adds a lot of extra complexity and extra cost. In this case, settling your estate using a trust instead avoids probate and potentially saves your heirs some hassle down the road.
Lastly, assets in a trust are hidden from the public record. Very often there are privacy concerns for those that inherit a lot of money, or specific assets. Using a trust keeps the money that will be inherited out of the public eye.
Depending on your state and the assets that you plan on leaving to your heirs, a trust may help you save significant amounts in attorney and probate fees.
Of course, there are downsides to trusts as well:
Trusts will be significantly more expensive to set up and maintain than a simple will. Here in Cedar Rapids Iowa, setting up a trust can cost $2,000 more than a will, at least.
And, every time you need to change the wording of the trust, expect to pay much more than if you were just making changes to a will.
A lot of times we see prospects looking into a trust when it is not really needed. If most of your assets reside within investments accounts such as a 401(k), IRA, Roth IRA, or brokerage account, you can set beneficiaries on the accounts and avoid needing to deal with probate at all.
Deciding on whether a trust or a will is best for your family is dependent on many variables.
If you are considering a trust, or just looking for help with estate planning, we are here to help.
We work with local estate planning attorneys in the Iowa corridor to help determine the best solution to your estate planning needs.
Estate planning is just one of our many services to clients. For more on what we do, see our services page here.