Wills vs Trusts

Wills

A will is a document that:

• Distributes probate assets after death.
• Names an executor to manage the process.
• Names guardians for minor children.
• Can include tax strategies (bypass trusts, marital deductions).

Advantages:

• Simpler and cheaper to create.
• Provides clear court-enforced distribution.
• Guardians for minors must be specified in a will (not in a trust).

Disadvantages:

• Assets in the will go through probate — public, slow, and expensive.
• Only controls assets titled in your individual name (not joint, TOD, or beneficiary-designated).
• Distribution happens at death; no control during life or for extended periods after.

Trusts

A trust is a legal arrangement where a trustee holds assets for the benefit of beneficiaries according to terms set by the grantor (you). Several types exist.

Revocable living trust. Created during your life. You're typically the grantor, trustee, and sole beneficiary while alive. At death or incapacity, a successor trustee takes over and distributes per the trust terms.

Advantages:

• Avoids probate for assets in the trust.
• Allows continuous management if you become incapacitated.
• Private — trust terms aren't public.
• Easier to administer complex distributions.
• Can span state lines more easily than a will (especially useful for real estate in multiple states).

Disadvantages:

• More expensive to create ($2,000–$5,000 typical vs $500–$1,500 for a simple will).
• Requires "funding" — retitling assets into the trust's name. A trust with unfunded assets doesn't accomplish much.
• Doesn't save income taxes during your life.
• Doesn't save estate taxes (assets in a revocable trust are still in your taxable estate).

Irrevocable trust. Once created, cannot be changed (or can only be changed under narrow circumstances). Used for specific tax or protective purposes.

Common irrevocable trust types:

• Irrevocable Life Insurance Trust (ILIT) — owns life insurance, keeps proceeds out of your taxable estate.
• Grantor Retained Annuity Trust (GRAT) — transfers appreciation to beneficiaries tax-efficiently.
• Charitable Remainder Trust (CRT) — donates to charity with income benefit to beneficiaries.
• Special Needs Trust — provides for disabled beneficiary without disrupting government benefits.
• Spousal Lifetime Access Trust (SLAT) — uses lifetime exemption while retaining indirect access via spouse.

Irrevocable trusts give up control permanently — you can't typically change beneficiaries or reclaim assets. The tradeoff is tax and creditor protection benefits that aren't available with revocable structures.

When you need which

Simple will is sufficient:

• Estate value well below state and federal exemptions.
• Assets primarily pass via beneficiary designations and joint ownership.
• No real estate in multiple states.
• Simple family structure.
• Children all adults and self-sufficient.

Revocable living trust adds value:

• Want to avoid probate for privacy or administrative reasons.
• Own real estate in multiple states.
• Complex distribution wishes (staggered distributions to children, conditional bequests, etc.).
• Want continuity of financial management if incapacitated.
• Modest net worth but want clean transition.

Irrevocable trust considerations:

• Estate value above federal exemption ($15M individual / $30M couple).
• Significant life insurance with large face amount.
• Concentrated appreciating assets (e.g., closely held business).
• Blended family with competing beneficiary interests.
• Disabled beneficiary.
• Creditor protection concerns.
• Significant charitable intent.

The "pour-over will"

When you have a revocable trust, you typically also need a simple will called a "pour-over will." It does two things:

1. Catches any assets not titled in the trust at death and directs them into the trust.
2. Names guardians for minor children (can't be done in a trust).

The pour-over will is a safety net. The goal is to have all significant assets titled in the trust (funded), but the pour-over catches forgotten bank accounts, recently acquired items, etc.

The funding problem

The single biggest trust planning failure is lack of funding. Creating a trust and then not re-titling assets into it is like building a box and not putting anything inside.

Each asset type has different funding rules:

• Real estate: new deed transferring title to the trust.
• Investment accounts: retitle at the brokerage.
• Bank accounts: retitle or add TOD designation to trust.
• Retirement accounts (401(k), IRA): generally NOT retitled to trust (would trigger immediate taxation). Instead, update beneficiary designation.
• Life insurance: update beneficiary designation if desired.
• Business interests: transfer ownership per operating agreement.
• Vehicles: some states allow trust title; often simpler to leave in your name with TOD.

After the initial setup, new assets need to be acquired in the trust's name or titled into it.

Cost comparison

Approximate costs (vary significantly by region and complexity):

• Simple will: $500–$1,500
• Complete estate plan (will + POAs + healthcare directive): $1,500–$3,000
• Revocable living trust package (trust + pour-over will + POAs): $2,500–$5,000
• Irrevocable trust (varies by type): $3,000–$10,000+

Online services (LegalZoom, Trust & Will, FreeWill) offer lower-cost options but with less customization and no attorney review. Suitable for simple situations; not ideal for complex ones.

How Horizons uses this

Horizons doesn't draft or store legal documents — that's the attorney's role. But the engine can model the distribution outcomes of different structures, showing beneficiary receipts under various scenarios and the impact of provisions like staggered distributions or charitable bequests.