Ep. 2: A Will vs. A Trust. Which Do You Need?

Subscribe where ever you listen to Podcasts:

In the second episode of Repair the Roof, Attorney Ted Gudorf explores the differences between wills and trusts. A will, he explains, is a legal document where you provide a set of instructions on how you want to handle your estate when you pass away. It functions after your death and provides you with nothing before it. It only encompasses that which is in your name alone and guarantees that your estate will go through probate. Probate is a court-supervised process where wills are submitted, and it can be expensive and time-consuming. For his clients, Ted wants to ensure that probate court is removed from possible involvement.

There are a few ways to avoid a living probate. One is to set up more than one trust, so that your estate will not need to go through probate court in the event that you become disabled. This includes identifying a successor trustee. Instructions in a trust should be as specific as possible.

One difference between a will and a trust is the involvement of creditors. Assets that pass through a will are subject to claims of creditors, where trusts aren’t. A trust is private, and not available for public viewing, and is administered much faster as it doesn’t require the involvement of a judge. For will-based plans, one should anticipate a flat rate minimum fee of up to 5% of the probate estate, where trust administration is about 1%. A continuing trust, or dynasty trust, keeps the assets protected in the event the beneficiary gets divorced, gets sued, goes bankrupt, or they become disabled.

Key Topics:

  • Introduction (00:05)
  • What is a will? (00:52)
  • Probate court (01:56)
  • Trusts (04:13)
  • Successor trustees (05:09)
  • Trusts v. wills (08:22)
  • Continuing trusts (12:55)


Transcript: Prefer to Read — Click to Open

This is episode two. Today we will focus on wills versus trusts. A critically important decision for most clients to make is whether they want to do a will or a trust. What is the difference between these two legal mechanisms? That’s what we want to cover today.

Wills versus trust, what is a will? A will is a legal document where you provide a set of instructions on how you want to handle your estate when you pass away. We have to remember that a will is very limited in what it is able to do.

First of all, it only operates when you pass away, it does not do anything for you while you’re alive, and therefore particularly does not encompass disability planning at all.

Number two, a will is ineffective in that it only controls those items that you own, that are in your name alone. It’s ineffective, for instance, for jointly owned property, or transfer on death property or any other property where you’ve designated a beneficiary. A Will will guarantee that your estate will go through probate. If I had a dollar for every time somebody has come to me and said, “I want to do a will because I want to avoid probate,” I would be a wealthy person. You see, a will does guarantee probate.

What is probate? Well, probate is a court supervised process where we have to submit your will and have it admitted if it was properly drafted, appoint somebody to be in charge of your affairs, provide a complete inventory of what you own, ultimately provide your beneficiaries an opportunity to contest the will or challenge other actions of the executor or the administrator who is appointed if the person serving is not identified in the will. Bottom line is that the probate court process is time consuming, stressful, can cost a lot of money, and typically, in the Montgomery County, Ohio area where I practice and the surrounding area, it’s roughly a two year process that is completely and totally unnecessary.

So, what is the alternative to a will? When we do comprehensive estate planning, first and foremost, we want to make sure that we are going to remove the probate court from having any involvement in your estate. If you become mentally disabled, why would we want to have to go down to probate court and do what we call living probate where we have to have a guardian appointed a guardian of your person to make medical decisions for you and a guardian of your estate. Guardianships are public, they’re expensive, and they last your entire lifetime. We want to make sure for all of our clients that we avoid living probate, that we avoid a guardianship. The last thing we want to have to do is go through living probate and then death probate.

Well, how do we do that? Well, there’s not just one way to do that. But the best way that we think to provide disability planning during your lifetime is to set up one or more trust. You see, the law says that if you establish a trust and take what you own, and put it in the trust during your lifetime while you’re alive and well. That is when the sun is shinning, then your estate will not have to go through probate in the event you become disabled. What you will do as a part of this trust is you will identify helpers, what we call a successor trustees to handle your affairs outside of the purview of the probate court. In other words, we find that most of our families have somebody that they can rely upon, that can properly administer their estate without needing the supervision or the guidance of the probate court.

What are the benefits of that? Well, it is done outside the public court process, it is private, therefore, and it is done less costly.

What is a trust? A trust is nothing more than a contract. It is a contract between you and your successor trustee, and it includes a set of instructions. Typically, on our trust, we wanted to be very detailed about those instructions. Because we may not be able to foresee all those things that are going to happen in the future. So, it is critically important that we take some significant time to provide disability instructions.

I’ll give you an example. Within our revocable trust, we’re going to identify who you want to be one or more people who would declare you to be disabled, in fact, if you are. Do you want a physician involved? Should that physician be your attending physician, your family physician? Do you want your spouse involved? Do you want your children involved? What if your spouse is not available? Who’s going to be on, what we call, your disability panel? You see a will only takes effect at death. But trust, most importantly, provides disability planning and allows us to identify who that successor is, and at what point they’re called in to service and who decides whether you are or not disabled.

Once that determination is made, we want to provide detailed disability instructions. How do you want to be cared for? What funds are we going to be used to pay for your care? Do you want home care, assisted care, nursing home care? Do you want to be maintained with a maximum degree of independence? All of those things are specified within the trust based planning instead of the will based planning. In the will base planning, you may designate another person, maybe through a durable power of attorney or medical power of attorney. But rarely are those documents sufficient. Rarely are they adequate to provide the type of instructions that are necessary. Oftentimes they’re subject to being overwritten if somebody else in the family decides to go ahead and apply for a guardianship.

One of the key differences between a will and a trust is whether we are or not involved in the probate court process during a period of disability. Now, we also have the same issue when you pass away or as we’re found to say, when your estate plan matures. You see, it is critically important for our clients that we try to administer your estate in a timely fashion. Why take a two year process through probate court, when we might be able to accomplish it in less than nine months through the use of a trust? And oh, by the way, in Ohio, assets that pass through a will are subject to the claims of creditors. You see in Ohio, creditors have six months from when you pass away to come in and lay a claim to your probate court assets.

One of the unknown things about trust is that trusts are not subject to claims of any of your unsecured creditors. That is that you can have your house and your money in a trust. And when your estate plan matures, i.e. you pass away, those assets are going to pass completely free of all unsecured creditors. One of the other little known advantages of trust based planning. The primary benefit of that trust based plan is that it includes disability planning, and it avoids the entire probate process at death. Therefore, when you pass away your estate can be administered in private is not subject to public viewing. There is no public inventory filed. Your trust is never filed down in probate court or anywhere else. It’s private, it’s a private contract between you and your family, number one. Number two, it is administered much more quickly, because we don’t have to go through the judge to approve everything. It’s done by your successor trustee with the aid or assistance of a law firm like ours.

Most importantly, because it is done privately, because it’s not in the public view, because it doesn’t involve us having to engage in the probate process. The fees are substantially less when you pass away with a trust than if you have to go through the probate process. As a general rule, I tell my clients, if you have a will based plan, and we do some of those, you should pretty well anticipate or expect that there will be a flat rate minimum fee, up to about 5% of the value of a probate estate. So if you have a million dollar probate estate, it’s roughly going to be about a $50,000 fee that gets associated with that. On the other hand, if you have a trust based plan, where you provide disability planning, and it avoids probate and creditor claims at death, those trusts will be administered upon death at roughly a 1% value of the estate. In other words on a million dollar estate $10,000. So the potential savings from a will based plan to a trust based plan is approximately 4% at death, and who knows untold thousands of dollars, if we’re able to make sure we have a sound disability plan.

Now, in addition to avoiding the probate process, protecting assets from creditors, oftentimes when we do revocable trusts in our office, we’re going to also ask you, if you want to do multi generational planning. Unfortunately, I don’t see many estate plans that contemplate this or talk about this. But it is a significant feature on all of our estate plans. That is that when you pass away and your estate plan matures, you have the unique ability to set up what we call continuing trusts for the benefit of your beneficiaries.

Now why would anybody want to set up a continuing trust that keeps on going? Well understand that if your beneficiary receives their inheritance in a continuing trust, some people call them a multigenerational trust. Some people call it a sub trust, some people call it a dynasty trust, it all means the same thing. But if your beneficiary inherits in a trust, versus what we call outright, then those assets are going to be protected. Protected from what? Well, they’re going to be protected in the event the beneficiary gets divorced, or the beneficiary gets sued, or goes bankrupt, or they themselves become disabled and need Medicaid. The assets in the trust will not be counted by Medicaid. Or what if they die? Those assets will pass along to those individuals, you decide whether it be the beneficiaries, descendants or otherwise, but they’ll pass along in the same fashion. They’ll be totally protected in the event there is a divorce or a lawsuit or a bankruptcy.

I hope that you have found this information helpful. There is a big difference between wills and trusts. I’ve covered some of those items. Hopefully you find that to be helpful. Well, this is Ted Gudorf. I’m signing off for the repair the roof. Thanks for being with us today.

Until our next session, just remember the time to repair the roof is when the sun is shining. To get started with your estate plan. You can go to Gudorf law.com forward slash Getting Started For a free copy of our recently published book called The Ohio Estate Planning Guide go to Gudorf law.com forward slash book

Back to All Episodes