Whenever someone asks me if they need a will or a trust, I tell them that the answer depends on their circumstances.  I then offer to discuss their life circumstances during my free hour long consultation to determine what options would fit their needs.  Many clients are surprised to learn that even if they set up a trust, they also need a will.

A will and a trust can serve the same purpose: distributing assets at death, but wills and trust have other purposes, too.  When you set up a trust, you also want to set up a will to make sure your estate plan is complete.

One main purpose of a will is to distribute assets at the time of your death.  However, a will is also where you name a guardian for your children, if that applies to you.  Certain decisions like picking a guardian belong in a will, and not a trust.  In addition to how and when to distribute certain items or classes of assets are better served by using a will than a trust.  As useful as a trust may be, you still want to have a will that works with the trust, often referred to as a pour over will, which works in concert with the trust, so that your full estate plan works together.  A trust may not cover all of your assets, depending on how a trust is funded, so having a will is essential, even when you have a trust.

 

What Does A Will Do That A Trust Does Not Do For Colorado Residents?

Both a will or a trust are able to distribute assets at the time of your death.  That is a commonality between the two documents, with the caveat that a trust will only distribute assets owned by the trust.  However, a trust is not the proper place to make decisions on guardians or conservators for your children.  A guardian is someone you pick to raise your children, which is especially useful if you have minor children, or a disabled child.  You want to carefully pick who will be responsible for raising your children if you are gone before they are adults.  The proper place to designate the guardian is in a will, not a trust.

You can also designate a person to serve as a conservator for your children.  A conservator is someone who handles money matters for your children and uses the money for the benefit of your children.  You should pick a conservator in a will, not in a trust.  A trust may hold assets, and the assets may be controlled by a Trustee, so you may not need a conservator if all of your assets are in a trust.  Oftentimes the Trustee and conservator are the same person: the person you want to control money on behalf of your children after you pass away.  You do want to designate the proper person to fulfill the proper role in the proper document.

 

What Type Of Assets Should Not Be In A Trust?

When someone creates a trust, they mostly want to put all of their assets into the trust, so that everything is consolidated in one spot.  Doing so makes things much easier on whomever takes over the trust after a death.  However, not all assets are good candidates to put into a trust.

For instance, re-titling a car in the name of a trust can cause all sorts of issues for insurance purposes.  In addition, a car titled in the name of a trust can create a higher likelihood of a lawsuit in the case of an accident.  There is no real legally based reason for a higher likelihood of a lawsuit.  When someone sees a trust as an owner of a car, the person may think they can get more money and are more likely to sue.  Keeping cars in your own personal name usually makes more sense.  The pour over will can move the car into the trust when you pass away, so you can consolidate everything in one spot.  You can and should keep the car in your name while you are alive, which tends to work better.

Assets like an IRA or 401(k) should not be immediately put into a trust, either.  Doing so will likely result in the full value of the IRA or 401(k) being counted as taxable income to you in one year, the year you create and fund the trust.  Given that using retirement accounts is a way to put off taxes and get tax free growth, having everything taxed in one year is likely not a desired outcome.  Instead, you can designate the trust as a beneficiary of your IRA or 401(k) account, which helps lessen the tax due in any given year.

 

What Assets Does A Trust Cover For Coloradans?

You always want to keep in mind that a trust only controls what happens to assets that are titled in the name of the trust.  If you own real estate, you need to use a deed to transfer the real estate into the trust.  If you have an investment account, you want to make sure the trust is listed as the owner of a standard investment account.  If you have a bank account, you can put the account in the name of the trust, or you can use a pay on death designation to transfer bank account funds into the trust when you pass away.  Assets not titled in the name of the trust will not be controlled by the trust agreement, so, you will want to consider putting assets into the trust once a trust is formed.

Several years ago I had a client who created a trust and promised to put all of his assets into his trust based on the instructions I gave him.  He truly meant to title assets in the name of the trust, but before he was able to complete the process he developed cancer.  The disease quickly robbed him of his strength and also claimed his life within three months of when we created his trust.  His daughter called me and wanted to know what to do.  I told her about the pour over will, and she went through the probate process to get everything into the trust.  After that, she could manage everything from the trust.  Ideally, we wanted to get everything into the trust before he died, but we were happy we had the pour over will to act as a safety net and gather up all of his assets to put them where they needed to be.  The trust worked, but so did the will.  Both were necessary to accomplish what he wanted to have happen and the issue with the trust resolved as best it could have.

 

Colorado Residents: You Can Have Both A Trust And A Will, But They Need To Work Together

If you want, or need, a trust to accomplish what you want to have happen in your estate plan, you need a will to complement the trust.  The trust and the will need to work together to bring about what you want to have happen in your estate plan.  Not only can you have a will and a trust, but you want to have both if you have a trust.  Working with an experienced estate planning attorney can help you make sure your documents work together and your estate plan does what you want.  Let me help you determine if you need a trust, or just a will, by meeting with me to discuss your unique situation.  Schedule an appointment today.