Today, we’re going to differentiate wills to trust and their advantages and disadvantages. There are two avenues to distribute your assets and wealth upon your death. One is the last will and testament, and one is the trust.
Difference Between Wills and Trust
A trust is solely a financial document, whereas the last will and testament is a financial document. But it also addresses things like guardianship of your children should you pass away, and you need guardians to take over the raising of your kids.
There are specific roles within each document. Within a will, there is an executor or personal representative. In Colorado, they use the term personal representative, it’s more commonly known as an executor.
But for other purposes, they use personal representatives. And that’s the person that lodges your will with the state court to get the probate proceedings going.
The executor is then the person that kind of goes through that probate process, and at the end of it distributes those assets to those people you’ve named in your will, once creditors and other administrative costs have been paid.
Conversely, we have what’s in the trust, you have what’s called a trustee. And that’s the person who manages the assets under the trust. This is the reason why estate planning is very important.
Typically, a person who creates a trust is their own trustee, and they’re managing those assets on their own behalf, then should they pass away or they become incapacitated, then a successor trustee steps in and manages those assets, and makes distributions according to whatever the trust terms are.
Both of these documents will ultimately get you to the same goal of getting your assets distributed to the people you want to the benefit of a will is, it’s very easy to create, it’s low cost, and nothing needs to be done.
Once you’ve created the will he put the terms of what you want in the will who you want to act as personal representative, how you want distributions to go. And that’s kind of it and the executor, the personal representative takes over. Once you pass away, once the willows lodge with the court.
Advantages of a Trust
The trust is a great document. And the advantages of it are it keeps those assets outside of the probate process, meaning the court doesn’t even need to get involved. If you have a trust. It’s also very advantageous if you have properties in multiple states. If you’ve properties in multiple states, you could add both of those properties into the trust.
And then you can avoid the probate process in two different states or three different states wherever you have property. Because wherever you have real estate, you would have to go through a probate process if you’re only disposing of things via a will.
The other advantage of a trust is if you are concerned about privacy, a trust is a really good Avenue because trust is solely a private document, whereas the last will and testament does become a public record.
So someone can actually access it should they go through the hoops of getting it. Another benefit of a trust is your heirs can immediately access those assets upon your death, whereas a will they’re gonna have to wait because it has to go through the court process and you have to hire a trust attorney to help with the process.
Disadvantages of a Will
The disadvantage of a will is there’s a lot of legwork upfront because a will is just done and that creates your wishes and it only comes into play should you die. But a trust is only valid should you transfer assets into the trust.
That means funding the trust is the term of art. That means retitling bank accounts, maybe changing beneficiaries of your IRAs 401 K’s life insurance policies to the trust. And the biggest one is if you have real property, it’s actually redeeming the property from you as an individual to the name of the trust.
And then you have to record that deed with the clerk and recorders Office of wherever that property is located. So if you’re willing to do the legwork of actually transferring all of your assets into a trust, it’s a great tool it keeps for ease of management keeps for privacy, and it creates for faster distribution to your heirs.
But the biggest problem we always see is people forget to transfer assets into the trust, in which case you’re going via the terms of a will anyway, and it kind of defeats the purpose. Other than that, at the end of the day, both will get assets to the people you want to get them to.
It’s just two different vehicles and whether you want someone who’s the executor to kind of to have to handle all of those distributions upon your death. Or if you want the successor trustee to do it upon your death. One involves a court process while the other one doesn’t.