Week 49 Day 2: Wills vs. Trusts: Which Do You Need?

Will: simple, cheap ($200-$500), but must go through probate -- a court-supervised process that takes 6-18 months, costs 2-5% of the estate in fees, and is public record. Anyone can look up your assets and who received them. Trust: more expensive to set up ($1,500-$3,000), but avoids probate entirely. Assets transfer immediately to beneficiaries. No court involvement. Private. Faster. Cheaper overall for estates above approximately $100,000. Key point: a trust only covers assets you have 'funded' into it (retitled in the trust's name). You still need a 'pour-over will' to catch anything not in the trust. And regardless of trust vs. will, you still need powers of attorney and healthcare directives.

The will-vs-trust decision depends on three factors: (1) Estate size. For small estates (under the state's 'small estate' threshold, often $50,000-$100,000), a will with simplified probate or 'small estate affidavit' is sufficient. For larger estates, the cost of probate (attorneys, court fees, delays) exceeds the cost of establishing a trust. (2) Real estate. If you own property in multiple states, a trust avoids 'ancillary probate' in each state -- a massive simplification. A will requires separate probate proceedings in every state where you own real property. (3) Privacy. Probate is public. If you want your asset distribution to remain private, a trust is the only option. Common misconceptions: (a) 'A trust avoids estate taxes.' Wrong -- a basic revocable trust provides zero estate tax benefit. You need a more complex irrevocable trust for tax planning, and the federal estate tax exemption is $13.61 million per person (2024), meaning fewer than 0.1% of estates owe federal estate tax. (b) 'I can just add my kid to my bank account.' This is a dangerous shortcut. Joint ownership exposes your assets to your child's creditors, divorce, and lawsuits, and it may trigger gift tax implications. (c) 'My will covers my 401(k) and IRA.' Wrong -- retirement accounts pass by beneficiary designation, not through your will. If your beneficiary form says 'ex-spouse,' your ex gets the money regardless of what your will says. Review beneficiary designations on all financial accounts -- they override your will and trust.

The probate process originated in English ecclesiastical courts and was designed for a pre-modern era when most wealth was in land. In the American system, probate serves three functions: validating the will's authenticity, supervising the orderly payment of debts, and distributing remaining assets to beneficiaries. The cost and duration of probate varies dramatically by state: California and Florida are notoriously expensive (statutory fees of 2-4% of the gross estate), while states like Texas and Virginia have relatively streamlined processes. Dukeminier and Sitkoff (2017) in their treatise on trusts and estates note that the revocable living trust has become the dominant estate planning tool in high-cost-probate states precisely because it replicates all of the protective functions of probate (creditor notification, orderly asset distribution) without the court supervision, delay, and expense. The funded revocable trust also provides incapacity planning -- if the grantor becomes incapacitated, the successor trustee immediately assumes management of trust assets without court intervention, which is faster and cheaper than activating a durable power of attorney for financial accounts held outside a trust. Langbein (1975) predicted this shift in his influential article 'The Nonprobate Revolution,' arguing that the rise of beneficiary-designated assets (retirement accounts, life insurance, payable-on-death accounts) and revocable trusts would make probate increasingly irrelevant for the majority of American estates. His prediction has largely been realized: an estimated 60-70% of American wealth now transfers outside of probate through beneficiary designations, joint ownership, and trust instruments.