Wills and living trusts are two common estate planning tools. Knowing how they work and when you need them can impact your family’s future.
An experienced estate planning attorney can demystify the tools and objectives of end-of-life planning, particularly one trained in Illinois probate process and state statutes. They can explain the purposes and interactions of different tools to determine the right choices for you.
Why You Need Estate Planning Tools
Wills and trusts provide instructions to family members and court officials when you die. While both serve estate planning purposes, they work differently. A will names your heirs and directs your assets to them while a trust is a more powerful financial document that takes ownership of your assets. You may create one or both.
What Does a Will Do, and Is That All I Need?
A will is a legal document that describes in detail how you want your assets distributed when you die. In it, you name an executor, the person responsible for handling your accounts and making sure the assets are provided to the people and organizations you choose. A will is a foundational document, an essential part of estate planning for most people. Estate planning usually involves creating a durable power of attorney and healthcare directive as well.
How a will works: This document can be a stand-alone item for people of modest means. An average will probate process (in which no one disputes the legality of the document) takes 6-12 months. During that time, the court confirms the executor who then settles the estate and distributes assets as directed.
Pros: Creating a will is inexpensive compared to creating a trust. It also allows a parent to name a guardian for any children under age 18 (a trust cannot).
Cons: if the estate is worth more than $150,000 and/or includes real estate, the will must go through probate. This incurs administrative costs and results in the documents becoming public record.
How Does a Living Trust Work? This estate planning instrument takes ownership of assets, which are then managed by a trustee. A trust establishes the terms for the assets to be used or distributed while the grantor is alive and after their death.
A revocable living trust is the most common trust tool. It allows the grantor to alter or cancel it at any time. An irrevocable trust cannot be changed once it’s completed.
Pros: Trusts distribute assets directly to heirs as directed by the grantor. Probate is avoided, saving time and expenses. The contents of a trust are kept private as the documents do not become public record. A trust can provide directions in case the grantor becomes incapacitated, allowing the trustee to act without requiring a court’s permission.
Cons: A trust cannot by itself name a guardian for a minor child. The up-front cost of setting up a trust can be significant.
Are Both a Will and Trust Needed?
Many Illinois residents who own property have both a will and a trust. The trust manages and distributes the assets while the will (often called a “pour-over will”) handles anything left outside the trust, and to appoint guardians for children if needed.
Having a living trust in place, even if it’s not fully funded, can work as an estate plan as long as there’s a pour-over will to direct assets. Any assets not in the trust before the grantor’s death first go through probate then enter the trust, keeping records private.
Those with significant assets who seek to avoid Illinois’ $4 million estate tax threshold need an advanced, irrevocable credit shelter trust or similar tool, as a living trust does not specifically protect assets from taxation.
Choosing the Right Planning Documents
Estate planning is not a one-size-fits-all situation. Those with simple estates may only need a will, while those with complex portfolios of assets and real estate are likely to benefit from both. An experienced attorney from Legacy & Life Law can make recommendations based on your particular situation and family circumstances. Call for a consultation today.