What Is The Difference Between a Will and Trust?
We often get this question. There are many differences, but the most important differences between the two options are:
1. What happens to my property and me during incapacity and
2. What happens to my property at death.
When you have a Will, your property still is owned directly by you. Your Will helps direct your family how to distribute assets after you die. But the catch is you can only have assets under the value of $200,000 in the State of Wyoming for a Will to have the authority to distribute your assets without the intervention of the Court, commonly known as Probate. If the value of your assets is $200,000 or less, your family can settle your estate through the use of Affidavits or completing a Small Probate, which is much simpler than a full probate. If your assets are worth greater than $200,000, your property must then go through a full Probate with a Court before your loved ones can receive your assets. Additionally, transferring real property or mineral rights requires Probate intervention of the Court. Probate is expensive, slow (usually one year) and public (anyone can see the property you have, including predators).
When you have a Revocable Trust, you own your property in your Trust. During your lifetime, you are in control of your assets, and you decide what your Trust owns. Initially, while you are alive, you (and your spouse if you are married) are the Trustees of your Trust and have full control of any assets under the Trust. You can name successor Trustees to manage your property in the event you become incapacitated or are unable to take care of your property while you are alive. You can also name successor Trustees to manage your property at your death. When our lawyers prepare a Revocable Trust for you, we also create a Pour-Over Will. This special type of Will moves any property that you did not put in your Trust, into your Trust. We try to make sure the value of property left out of the Trust is less than $200,000, below the requirement for a Wyoming full probate. If your assets held outside of your Trust is below $200,000, we can use Affidavits and Small Probate procedures to transfer your property, if needed.
To help show you the differences, let’s see what happened to Wilma, who had just a Will, and Tina, who had a Revocable Trust with a Pour-Over Will. Each was widowed and owned:
· $350,000 home;
· $30,000 car ;
· $20,000 checking account;
· $20,000 savings account;
· $100,000 life insurance policy; and
· $20,000 of various personal property including their diamond wedding rings.
Each had an adult son and adult daughter. Their sons died about three months before they died, in a car accident, leaving two small children and a spouse. Both Wilma and Tina developed dementia six months before they died and were unable to manage their own affairs the last six months of their lives.
Wilma’s Estate
When Wilma developed dementia, her daughter Diane had to file for Guardianship and Conservatorship of Wilma to help manage Wilma’s affairs. This required a Court hearing for the Judge to determine that Wilma was incompetent. It was embarrassing for Wilma and painful and expensive for the family. Diane had to file detailed reports with the Court on everything she did for Wilma. Six months later, Wilma died.
In her Will, Wilma left all of her property to her descendants, per stirpes. Per Stirpes is a Latin word that means “by branch.” This means that property is divided amongst Wilma’s children first and, if one of those children dies before Wilma, then their share is divided amongst their children.
Wilma left her checking, savings, and life insurance to her children equally and did not update the beneficiaries of these after her son Wayne died. Bank accounts, life insurance, car titles and other titled assets are transferred based on ownership of the account or they are transferred to the transfer on death beneficiaries. This means her checking, and savings accounts and life insurance proceeds will be transferred one-half to her daughter and one-half to the estate of her deceased son, Wayne. This will result in Wayne’s estate having to Probate through the Court his share of these assets.
If Wayne had no estate plan at the time of his death, under Wyoming’s Intestate statutes, his interest in these inherited accounts will pass one-half to his spouse and one-half to his minor children Bill, age 5, and Ted, age 6. Wyoming law will require a Conservatorship be set up to manage these assets for Wayne’s minor children. Did Wilma want $30,000 to go to Wayne’s wife? Maybe, but probably not. Also, when Bill and Ted each turn 18, they will get the assets from the Conservatorship outright. Will they be ready to manage this money? Would it have been better to hold the money back until they were 25, except for medical and educational expenses?
Wilma’s estate was large enough to require a full probate to transfer her home, and personal property to her heirs. The daughter, Diane, was appointed as the Personal Representative under her Will. Diane had to hire an attorney at a fee of about 2% of the estate value ($8,000).
Wilma did not leave a personal property list with her Will. Therefore, Diane had to make an inventory of all of Wilma’s assets, including an inventory of Wilma’s personal property. An auctioneer was called to prepare the inventory list and provide a valuation of these items. Diane had to obtain an appraisal of Wilma’s home. The attorney filed a Petition for Probate, providing details of when Wilma died, including who her heirs were, filed Wilma’s Will with the Court, a Notice of the Probate was published in the newspaper four separate times, and known creditors were provide a Notice of the Probate to have the right to file a claim with the Court. Soon after, the inventory and appraisal of Wilma’s property was filed with the Court. All of these records are publicly available. The house was then sold. After paying all the expenses associated with this process, including paying creditors and paying Diane a Personal Representative’s fee, similar to the attorney percentage, the remaining amount is divided by the Court with one-half going to Diana, Wilma’s daughter, and the remainder to Wayne’s estate, to be probated further again. This process can take from six months to a year or more, depending on the complexity of the assets, creditors, how difficult it is to sell certain property, and whether the family fights over the assets.
Although it is better to have a Will than no Will, where there is a Will, there is a Probate. Probate is essentially, the family filing a lawsuit against themselves to transfer the property to the heirs. This means the family knew where Wilma wanted her assets to go, but it took a long, complicated, and expensive process to settle her Estate. The process is public and makes private matters available for anyone to see.
Tina’s Estate
At the creation of Tina estate plan, including a Trust and Pour-Over Will, Tina transferred the Deed of her home to her Trust. Her savings account was also titled to her Trust, while her life insurance policy and checking account each had the Trust named as the Transfer on Death beneficiary. Tina, at the creation of the Trust, transferred ownership of her personal property to the Trust. When Tina developed dementia, her Trust controlled all of her assets, except for her checking account and life insurance policy. Her daughter, Diane, was able to step in as the successor Trustee under incapacity, named in Tina’s Trust. Diane set up a new checking account in the name of the Trust and seamlessly took over management of Tina’s affairs.
Three months after Tina developed dementia, her son, Tom, passed away, leaving two children, Bill and Ted. Then, three months later, Tina passed away. Diane continued to manage the Trust, as the named death successor Trustee. Diane sold Tina’s home and deposited the proceeds in the Trust account. She collected the life insurance proceeds and checking account balance, also depositing these proceeds to the Trust account. After Tina’s death, Diane realized Tina had recently bought a new vehicle and forgot to title the new vehicle into her Trust. Diane, with the help of Tina’s Pour-Over Will, was able to re-title the vehicle into Tina’s Trust and sell the vehicle, signing with her authority as the successor Trustee, and then deposit those funds into the Trust account. This was all able to be accomplished without the intervention and expense of the Court.
Tina’s Trust left her assets to her descendants, Per Stirpes, as well, but directed the Trustee to continue to manage the assets for any beneficiaries until they are at least 25 years old, rather than requesting the assets be transferred to the beneficiaries outright. So instead of Tom’s one-half share of Tina’s estate going to his wife and underage children, it is held in a sub-Trust for Bill and Ted until they turn 25, or later if they choose to leave it in the Trust. Tina’s daughter, Diane, manages the assets for Bill and Ted during this time as successor Trustee of Tina’s Trust. This ensures that assets are available to help pay for Bill and Ted’s care and needs, while also ensuring Tom’s wife doesn’t take their inheritance for herself. Tina’s Trustee was able to help Bill and Ted with expenses related to health, education, maintenance and support, which helped them cover their expenses for most things they need. To Bill and Ted’s dismay, this does not, however, include buying new sports car while they are under 25. This also protects Tina’s hard-earned assets to not be paid out to creditors, ex-spouses, or children before they are financially and emotionally ready to handle these assets.
Tina’s family was grateful she took the time to create a Trust. When she died, her family was able to spend time together remembering her life, instead of spending time in court and at the lawyer’s office. Assets were passed on to her heirs, instead of paid to appraisers, lawyers, and the newspaper publications.
Have questions about setting up your Trust? Give us a call at 307-682-1313.