Wills vs Trusts | Which do you need?

you know us at 90 days from retirement as the medicare nerds but did you also know that we have in our office is an unbelievable attorney who specializes in estate planning his name is attorney greg lyle and in this video we'd like to introduce him to this channel because he is going to handle all of the things related to estate planning because our clients often come to us for help with medicare and social security but they're also looking to protect themselves and their assets once they move into retirement with things like wills and trusts so greg's going to tell us all about the difference between wills and trusts [Music] today we're going to talk about the difference between a will and a trust this is a confusing topic this is a question that i get at least once a day and for good reason right a will versus a trust do i need both do i need one let's talk about it i'm gonna make it very visual for you i'm a very visual person so i'm gonna assume that you're visual as well of course and we're going to walk through it and i'm going to give you two different examples and hopefully by the end of it you'll say okay i get it i get it i need both i need the one so let's go ahead and go through it so i think first of all one of the easiest ways to understand the difference between a will and a trust is to understand the old way we did things i'll call it the old model versus the new way we do things i'll call it the new model so under the old model the job of the will was to dispose of your assets right so it would give everything to your heirs upon death but it would do it through court so the upside of that is it was easy in the way that family you know you didn't have to really title anything differently you would just own your house in your individual name you'd own all your stuff in your individual name and then when you died your family would go to court that's the downside and go through a probate right now probate's not fun it's expensive it's time consuming it's not something we want to do if we can avoid it so that's the old model is just to pass everything through a will and and through the court now the new model what we would do nowadays is we would put your stuff in the trust now i'm making it very simple we may or may not put everything in the trust depending on your situation it all depends on how much control you want to exercise over certain assets now i would say you got to be careful with that some parents or loved ones have set stipulations that are not realistic or that hold a child back or can cause harm in some instances but really that's the idea of a trust is to be able to give it to your heirs when you want them to get it through these these private means right so that's what we're doing is we're passing your assets uh directly to those beneficiaries now in this instance as i mentioned before that role that the trust is playing that's the role that the will sort of played in the first instance and that's why people get confused but under the new model the will has a totally different role its role is to act as a fail-safe so where the trust already passes everything we don't need the will to do that the will acts as it did in the first instance as a court document a set of instructions to the court to tell them where stuff goes so if we do things right everything should go to your beneficiaries and avoid court but let's say that a loved one bought a property and they bought it in their individual name who knows why maybe for the speed of the transaction or they forgot they had a trust whatever it is if they die and nobody owns it well it's going to go to court and that's where we're glad that we have the will right because now the will is going to shove it back into the trust and it acts as that fail-safe to to make court easier make court quicker dispose of things privately through the trust at the end of the day all right so that is the first example of the difference between a will and a trust so to summarize under the new model the job of the trust is to dispose of things privately and make sure it goes to who you want upon death the job of the will is to kick things back into the trust if you mess up and and don't put it in the trust correctly so let's go through another example again i want to make things very visual for you make it very easy to understand so i think one of the easiest ways to understand the difference between a will and a trust is to understand what happens when somebody dies owning property without a trust so what happens if somebody dies owning property without a trust so let's use an example of a married couple and this would be very similar if you're a single person but let's use the example of a couple so when you buy your property the seller puts a deed in both your names right typically people are going to be what we call joint tenants on the property just means you're both 100 owners on the property that deed is taken it's filed with the county and that deed is hugely important right because that's what makes you the owner of your home so if one of you dies it's really not a huge deal legally right because the other keeps owning it keeps living there not a problem the problem comes in on the second person to die because when that second person dies all of a sudden nobody owns it right so your kids or your beneficiaries whoever those people are that would inherit from you they'd want to come in and they'd want to sell it but they can't because they don't own it and so we're stuck right and what's going to happen in that case well again they would try to sell it but they wouldn't be allowed to because they're not on title can't give a deed to the new buyer they'd have to go to court now if you think about it from the perspective of the county it makes a lot of sense right if you work at the county and a kid comes in and says hey my dad died i want to get to his house how do you know that that's his only kid how do you really know that's his kid and it's not you know a fake id how do you know that he even likes his kid right so it really puts the person in a bad situation and so the county would say hey you got to go to court and you're going to have to come back with a court order saying that you can sell this house and that's what would happen they'd go to court now this is where you can see the role of the will again right the will is that set of instructions in court telling the court what you want if you don't have the will again it goes off of that default code which can be or cannot be what you want depending on the situation through that probate process you would be able to sell the home but again it's going to take you know months to years depending on the situation and depending on the state that you're in so there you go that's the kind of the that you know old model of of going to court right now we're going to look at inheriting with a trust so a trust is a private contract but think of it like a corporation i think that's an easy way to picture it so with a trust there's owners and there's managers of the trust just as there's a board of directors with a company and their shareholders right board of directors runs it shareholders own it same idea with your trust you own it you manage it no big deal so we get the trust in place and we have the manager which is the trust eu and we'd have a backup manager that is typically going to be a family member that could be again if you've got small kids that could be a brother a parent if you've got kids that are of age you know that could be those kids depending on when you want them to receive it regardless of who it is we will put this trust in place and then we would go ahead and put your property in the trust that's very simple we do that through a simple deed it's literally usually a one-page document that we file with the county not a big deal really easy to do and now according to the county your trust is the owner of that property now here's why that matters so if one of you dies same as before no big deal the other keeps living there keep owning it but on the second person to die that's where it matters right because the trust doesn't die the trust keeps owning that property and the new manager just steps in files an affidavit with the county and they can sell that property if you think of this in the perspective of from the perspective of a corporation right just because a shareholder dies doesn't mean the company dies the company still owns its property it still has other owners you know still has a board of directors that's running it so similar idea with your trust and i think that's a healthy way to kind of picture your trust so that's that in terms of where it goes when you pass away using a trust it avoids court and the way that it does is continuity of ownership right so the fact that you die and your trust doesn't die it keeps that continuity of ownership and so there's no need to go beg the court and ask them for permission to sell the property now let's delve into some questions that i get all the time from people one is what are the benefits of a trust why should i even do a trust and there's lots of benefits of a trust one of the benefits is you get to control when people get things so as a dad of kids who are 12 years old and younger that's important to me right i don't want my kid getting you know a couple hundred thousand dollars when they're 18 and graduated from high school which is what would happen right if you die and and the kid's an adult so the trust allows you to say when they get assets you know what they need to do to get those assets you could say well you got to go to college or you got to do this or that and it allows somebody to invest and control those assets for them but still take care of them with the money a trust can provide some tax benefits that's a whole other presentation we're not going to do that today but it can provide some tax benefits depending on how much money you have when you pass away it keeps control in terms of somebody who has drug issues or somebody who's got medical issues here the trust can say well you never inherit that fully or this is the person who manages it for your lifetime or here's what i want it used for that's a huge benefit of trust it's also private a will is public as opposed to a trust which is private you can actually go and look at like jackie onassis you can look at her will you can look at other famous celebrities wills another thing is it reduces conflict if you have a trust that's done well it should say who gets what and it should make it very clear and it's also not an open lawsuit which a probate is so if somebody has a problem in a probate all they do is file you know emotion right and they're off and running whereas if somebody has a problem with the trust it's a higher bar to get there and it's more money to get there so those are some other things that a trust does in addition to avoiding probate which we all know it does let's go ahead and talk through a couple questions that i get from people all the time trying to avoid having a will or a trust and they raise some good points and i want to make sure that i address these questions in case you have them one is people will say to me all the time look my stuff is simple i don't need a trust can i just do a will and the way i respond is you can but understand what you're getting and what you're not getting you're not getting control you're not getting to say when people get things you also are making your family go to court that's what they're getting and it's not a huge that's not a great thing right it's expensive it's time consuming and as i pointed out it can lead to problems it can lead to disputes which run their course through court the second question i get all the time is can i get away with doing nothing it's possible that you could get away with doing nothing and by that what i mean is maybe you don't need a will maybe you don't need to trust again i would advise you to have one because it's not that expensive and it's pretty simple to do but i have had a few instances where a client has said i just don't want to do it and they've gone their merry way and they've they've taken care of things where would that work well it works if the person only has accounts right so let's say all they have is a 401k and they've got a bank account and they have beneficiaries and they have enough layers deep that if those beneficiaries die it's going to go to the people they they want either way they could avoid it now they can't avoid it if they have real estate typically right and even cars can can cause probate depending so not a great idea i would advise against it it's not that expensive just go ahead and do a trust go ahead and at least do a will another question i get and this is from more sophisticated clients who've clearly thought about it they've they'll often say you know what i've realized that if i have co-owners when i die then nothing goes to court and they're right they make a good point you know for example if you and your spouse own a house and you add a kid to the house would it avoid court when you die yeah it would because there's an owner that when you die they're just going to keep owning it same thing with accounts now why would i advise against this and i would advise against this heavily because it can backfire really badly so let's talk about a few instances where i've seen it backfire one is an instance where a dad added a son to his house and the son for whatever reason they had a falling out and he said you know what i want to get my share of this house and he filed a lawsuit against daddy filed a partition lawsuit and he was able to get you know his share of the house right and the court partitioned it not a good situation not a very honest thing to do but legally there was nothing wrong with it can also open you up to liability what do i mean by that i mean that if you add a child to a bank account let's just say you add a kid to your bank account it's got a hundred grand well what if that kid gets divorced right and that happens you know that you added them during the marriage well could that be considered a marital asset and are they now going to tie that into this lawsuit well it's possible right also if the kid gets in a car wreck all of a sudden somebody who's going after them that creditor they could possibly go after your account because that is considered the kid's asset a couple other instances um you know if you have multiple children and you decide to add just one to an account it's just a recipe for disaster why because legally the kid's going to get that property when you die so that the moment you die that property vests in that child i don't care what your trust says if you have a trust i don't care what your will says if they're named directly on that account it's going to go to that kid so that is scary right and it's scary because all of a sudden that kid's going to have all that money they don't need to share it even if they're honest and they want to share it they're going to take a tax hit it's considered their money and so if they want to share it that's considered a gift right so that's a big issue also the biggest one of all is adding real property right and i gave you an example of where it went wrong let me give you another example so i've seen this happen a few times where a parent will add a kid to a house sometimes the kid doesn't even know but the parent will add a kid to the house and what will happen is the parent will die and if the parent had put it in a trust and the kid inherits it through the trust they get what we call a step up in basis to fair market value and what that means is when the parent bought it let's say they bought it in the 80s you know the property's been going up up up up and now they die well the kid if they're a co-owner they've got to pay all the gain between when they bought it when the parent bought it to when they died that is a huge tax hit whereas if the parent would have put it in a trust and then died the kid gets what we call a step up in basis to fair market value so they would not pay all that gain that is a huge difference just a huge difference so i hope you found those two examples helpful hopefully it made it more visual for you and you can understand when you are acting under that old model of just doing a will that goes to court and when you're acting under the new model and again as an attorney i would advise you to act under that new model and to go ahead and plan your estate through a trust and a will you're going to need both in most estate plans and if you have any further questions please just put them in the comments below happy to answer those we do read those comments and if you would please like and subscribe we are going to be coming out with a lot more videos on estate planning

Channel: The Retirement Nerds

Views: 18,666

Keywords: estate planning, wills, trusts, wills vs trusts, property, assets, financial planning, family, how to set up a will, how to set up a will and trust, will and trust planning, will and trust, will and trust difference, will vs trust, will vs living trust, estate planning basics, estate planning attorney, estate planning 101, estate planning trusts, legal help

Id: rtzlyoPfqA4

Length: 16min 15sec (975 seconds)

Published: Mon Feb 14 2022