Will vs. Trust — What’s Best for Your Family?

Do you ever wonder what will actually happen to your money, property and family? If or do I mean, when something happens to you? Most people assume a simple will is enough. Half of America doesn't even do that. But the truth is, relying on only a will could force your loved ones into probate court and thousands in legal fees, delays in inheritance for months or even years. I'm Mark J. Kohler, CPA attorney, bestselling author, and I've helped thousands of families and business owners protect their assets and pass on their wealth the right way. In this video, I'll break down the real differences between a will and a living trust when you need one versus the other, and how to structure your plan so your family is protected with less stress, cost and conflict. Stick around, because by the end of this video, you'll know exactly which option is best for your family and how to set it up properly to save money, avoid probate, and keep control of your legacy. Let's get started. First, some quick definitions. A will is a legal document that says who gets what when you die. It also lets you name guardians for your minor children, children, and an executor to carry out your will. But here's the catch. A will, no matter how beautifully written or notarized, must go through probate, which is a public court process which can often take nine to 18 months and usually costs thousands of dollars in legal fees. The purpose of the probate is to have a court verify that your will is valid and accurate and you really wrote it and it's just a public mess to get that process done. Now, on the flip side, a revocable living trust is the ability to not only say who, get what, but when and how. And you create this bucket during your lifetime. You put your assets into it, you control it, and while you're live, you can make changes anytime you want. But when you pass away, your chosen trustees distribute everything without court involvement. But the when and how part is what most families miss. And it can be the difference between protecting your loved ones or leaving them a mess. And oftentimes, it's protecting them from themselves. Now, why do most families choose a trust? If you want less court, less cost, and more control the trust. Trust isn't just optional, it's essential. Probate isn't just costly, it's also a very public process. Your will becomes part of the public record, meaning anyone can see what assets you had and who got them. With a trust, however, everything is private. The trust also saves time and money. The average probate cost, again could run 10,000 or more. And that's in a simple case. If family members can test it, the fight can drag on for years. But with a funded trust, your trustee can act immediately. And then you have this control beyond the grave. They oftentimes call it dead hand control. Your hand just comes out of the grave. You can actually stagger payments, set age milestones, or put conditions on distributions. That means you're protecting heirs from blowing money in one shot. And also, if you know me, I love the trifecta Foundation. Your trust sits at the bottom of your entire trifecta strategy, tying together your operations, your investments, and your tax return. Without it, the whole structure gets exposed and confusing. Who owns what, why, when and how. We don't want that exposure. But a will does well, and it's very important. With every trust we set up, we always do a will again. It establishes the guardianship for minor children or issues for children that act like minors. A will is the only way you can name someone who will raise your kids if something happens to you. Your trustee can manage the money, but your will decides who actually takes care of the children. This companion will to your trust also creates what we call the pour over function. Even with the trust, you'll want a simple pour over will that scoops up the any and all assets you forgot to move into your trust and funnel them into your trust at death. Think of it like a safety net. Now, some of those assets may still need to go through probate, but at least we know they end up in the trust and then are distributed pursuant to those rules. Now, as an emergency backup, if you don't have a trust and you pass suddenly, a will is still far better than nothing at all. In fact, many states allow you to do a handwritten will or a holographic will. And I highly recommend this. Statistics show that 50% of Americans don't even have a will. Hence why there's billions dollars every year spent unnecessarily, frankly, in probate court. So think of your will as the baseline, the guardians and backup plan. Your trust is the upgrade that handles everything else. Now we have the funding procedure, or the step most people miss after setting up their trust. Here's the biggest mistake they make. They've got this beautiful trust, signed, notarized. Everybody knows what's going on, or the people. You want to know what's going on, but it's empty. Nothing's in it. You didn't transfer all of your assets into it so it could take effect. Let's go through some of those Assets first, Real estate. You need to deed your primary residence, your home and any LLC that own rental property into your trust. Your trust should own all of your entities and it doesn't trigger a tax to make these transfers. We're going to transfer all that real estate into your trust and it continues to maintain your homestead protections. Bank and investment accounts. We also want to do what's called COB or change a beneficiary to designations and forms so that all of these financial accounts are actually owned by the trust. Now remember, you're the trustee while you're alive, so don't stress no one takes over or takes control until you pass away. And if you're married, you would be co trustees of your revocable living trust. Also, let's think about retirement accounts. They go into the trust as well. We want that beneficiary to be the retirement account. Now normally your spouse would be first, but the trust is second. No one really owns a retirement account. It's just who's the beneficiary. And we want that trust to be a backup. So if you've got a 10 year old or an 18 year old or a 30 something that acts like a 15 year old, you want those retirement accounts to go to your spouse first and then into the trust where the distributions can be according to your rules. Now life insurance is very similar to that. We want the trust to be named as the beneficiary again after your spouse, so that the money follows your distribution rules instead of just getting dumped into the laps of theirs. I've got some stories that would just make you shudder of kids in their 18 to 22 phase of life getting massive checks from life insurance and just blowing all of it. And I don't know if I blame him. I probably would have done the same thing. You don't want your life insurance to create that windfall for kids that aren't ready for it yet. So funding is the step that separates the real plans from the wasted paperwork. Don't skip it. Now let's talk about some smart provisions to protect errors. And I love getting creative. When we set up a trust for our clients, we give them two to three pages of ideas. And it's always astonishing to me how many clients come up with even newer or better creative provisions. Here's just a few. The first option is staggering payouts. I love this. Instead of dumping a lump sum on a 21 year old, you can release funds in stages, like a third when they're 25, a third when they're 30 and then 35. Trust me, they're going to blow the first third. But when they turn 35 and get that last piece, they're going to take care of it. You can also create incentives inside your trust, rewarding benchmarks that you'd like them to complete. For example, money when they graduate from college or even a master's or a doctorate degree helping them through college. If they have a certain gpa, you can help them start their first business or buy their first home or have money for a marriage. Or if they have a job that's more service oriented, that doesn't pay a lot, you might match something like that with every dollar they're earned. There are so many different ide. I also love a variety of safety provisions which include language that delays payouts if your heir is dealing with substance abuse or a major creditor problem or crime or something devastating. Putting more money in their laps during that situation or process is not a good thing. These provisions protect them again from themselves and maybe from some even outside threats. Then we have the special needs situation and God bless those parents dealing with handicapped children. We want a trust that can continue to take care of them when you're gone and if necessary still allow them to get fed federal or state aid through what's called special needs provisions if that's necessary so that this trust can live on and take care of them as you did when you were alive. Then there's charity and legacy. You can even set aside a percentage for a family foundation or a charity you want created upon your passing. Churches, colleges, so many different options. Bottom line, with the trust you just don't leave assets. You leave a playbook, a rule book, and that's something a will just can't do. Now I'd also like to talk about retirement accounts again and maybe call this small tweaks big impact. Think about it. Retirement accounts are often the largest asset people have and how you pass that down matters. For example, if your child inherits a $100,000 Roth IRA, they get 10 years of tax free growth and continued investments as long as they have it fully withdrawn by the end of those 10 years, that could double or even triple in value while they're receiving those funds. But if you simply leave cash, you're not leaving that engine of the Roth IRA vehicle and teaching them investing with that retirement account that can be so impactful. And also the beneficiary designations super important. Naming your spouse first and your trust second to enforce those rules is extremely important. But a lot of people forget to do that when they were setting up the retirement accounts or life insurance policies, they just put their kids as contingent beneficiaries. Well, if they're under age 18, it's just going to sit there waiting for them until their 18th birthday. That can be really scary. Sometimes what you inherit matters more than how much. And that's where proper planning changes everything. Now business continuation plans and real estate super important. If you own rental properties or a small business, your trust should spell out how those assets are to be managed, maybe even sold or passed on to the next generation. This is something that should be talked about and written down. No one can read your mind when you're gone. Now, if you have LLCs or corporations, the trust should be the member or shareholder of those entities so your successor trustee can step right, collect accounts receivable, hire and fire, continue to operate the business. Again, if you don't have that trust and properly funded, who knows what's going to happen? A judge would have to step in through probate just to run the business. Without this, your family may be stuck in court for months, if not years, just to figure out who can sign a check or execute a contract. And by then the business could be decimated. Don't let a thriving business or rental portfolio collapse because you failed to plan cost updates and expectations. Affordable. A revocable trust is mainstream planning and not something that's exotic or expensive. It's amenable and very affordable to implement savings avoiding probate. Also, there's some privacy benefits from having your name not on everything, but having the trust out there. Annual checkups, reviews of beneficiaries and new transfers or funding can take place at any time and can be extremely affordable. Think of your trust like a gym membership. It only works if you keep it active and you want to keep attending the gym. Just just like your trust, you want to keep looking at it and reviewing it. So in summary, here's the bottom line on wills and trusts. Use a will for guardianship of children and a simple backstop. Use the revocable living trust to avoid the probate. Maintain privacy and control when and how your heirs inherit. This isn't exotic planning. It's mainstream smart and can save your family a huge amount of stress, time and money. If you'd like help creating your trust, my law firm, KQOS Lawyers, can walk you through the process and make sure it's done right. And we help clients in all 50 states around the country and jump on a zoom call with actually working with a real lawyer and making this extremely affordable. If this video was helpful, hit like subscribe and click the bell so you don't miss future strategies to protect your wealth and your family. I'm Mark J. Kohler, and I'll see you in the next one.