Trusts vs. Wills

Many of us grow up hearing about one way assets are transferred upon death: wills. TV shows and movies showed us dramatic scenes of wills being read and various family members finding out in that moment that they were rich or destitute. Wills are an excellent device for storytelling but a poor device for the real world of estate planning.

That being said, if your estate is less than $100,000 in Washington, a will is likely all you need. As a Vancouver area estate planning attorney, I make sure my clients are aware of Washington's simple estate exception where wills can be processed without the same level of court oversight. However, once your estate exceeds that threshold, which almost anyone in Washington with a home will exceed, let alone other assets, leaving a will means your family will end up in probate. Estimates from groups like AARP and various elder-focused organizations suggest the typical fees in probate to be between 3-7% of the total estate value. This includes court costs, legal fees, other professional fees (accountants, business valuations, real estate agents, etc.). While those percentages may seem small, if we go with the middle of 5%, an estate valued at $500,000 would lose $25,000 in fees just to distribute your assets, no value would be added. Depending on the nature of your assets, if the estate does not have liquid funds to cover these expenses, your family could be on the hook for paying out of pocket for these costs while they wait for the estate to be resolved, which could be as much as 6-12 months if not longer.

Now that we've discussed the downsides of a will, what is the solution? Trusts. Plain and simple, setting up a trust rather than a will alleviates these concerns. A trust allows for the near immediate transfer of your assets to your designated beneficiaries after death. All that is required of your trustee is a death certificate and the trust documents showing their appointment as trustee. Trusts are more expensive to set up than a will as they are slightly more complex but, if your typical trust package costs $4,000 versus $1,500 for the will and it saves your estate $25,000 by avoiding probate, I think the extra $2,500 is more than worth it. In this example, that is a 10x return on investment for your estate. And beyond financial concerns, a trust also greatly eases the distribution process so your family will not be pulling their hair out dealing with the probate court on every decision.

The best metaphor I have heard thus far for the trust vs. will debate is this: If you die with no estate planning at all, you are telling your family "there is a pot of gold on top of a mountain over there, go find it" with no instructions on which mountain, how to get there, what tools you might need, etc. If you die with a will, you are telling your family "there is a pot of gold on that mountain, go find it" with no instructions on where exactly it is or what tools they need to get there. If you die with a trust, you are telling your family "there is a pot of gold on top of that mountain right next to the helipad and here is a helicopter to take you to the top."