Differences Between a Will and a Trust to Leave Money to Family

Now that we're enjoying our retirement, we want to make the best possible provisions for our children to inherit our estate. We've established a trust, which is a legal instrument that lists all of our assets in one inclusive document. It's the most certain way to be sure that those you want to inherit your estate will get their shares as you intend. As the owner of the trust, you have total control while you live, including personal spending, investments and voluntarily giving.

My first piece of advice, once you decide what you plan to do with you assets, is to sit down with your children and tell them, now. Too many people keep things secret to avoid conflict, which is then compounded after your passing. Let the people in your family know your plans and deal with any anger now.

In order to draw up a legally binding trust , we hired an attorney who is skilled in estate law, including investments and taxes. Because you retain control while you're alive, the legal document is called a "living trust". Because it can be changed or canceled at any time, it's also known as a "revocable trust".

Simple wills, sometimes written without the aid of attorneys, usually indicate that upon the death of the estate owner, all assets are left to the surviving spouse. Then, when that person dies, the children inherit everything. Of course, it's not always that simple. Families may be affected by divorces, second marriages, broken parent-child relationships, step-children and other complicated factors.

A trust avoids the time and cost of probate, the legal process of distributing assets. A trust is valid as soon as you fund and activate it, so your heirs will get what you want them to do without long delays. A trust will cost a lot more than a will to set up. We paid about $3500 for the legal expenses and fees. A trust does not cover guardianship of children, if that is a concern, but legal supplements can easily be added to cover those areas.

One area of concern is creditors and debt. With a will, there is a limited time period where creditors may make a claim, but a trust lacks that closed-end security. Also a will is a public document which becomes public record, a trust may offer more privacy if that is a concern.

The tax laws concerning leaving assets to heirs change often, depending on Congressional actions. For example, this year, $1 million of an estate's value can be left to heirs without being taxed. Any inheritance above that amount will be taxed at the rate as high as 55 to 60 percent.

My spouse and I enjoyed long careers and have accumulated an estate which may reach a value that could be affected by the current laws on inheritance taxes. Therefore, we're taking steps to keep lowering the value of our total assets. Our way is to take advantage of the tax-free provisions on gifts from our trust to children. This year's allowable amount is $13,000 per parent per child. That means a married couple can give a total of $26,000 per year per child.

Because we have five adult children, which means we can give them a total of $130,000 a year tax-free. Actually, the gift is only tax-free to the recipients, so we must pay whatever taxes apply. However, it does reduce the value of our estate enough to keep it safely below the current $1 million in value.

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