The Difference Between a Will and a Trust
The coronavirus death toll in the United States is now higher than any other country in the world. Hospitalizations and death tolls are increasing exponentially with each passing day. The pandemic and its devastating effect have motivated many to purchase a life insurance policy and make plans for their assets in case of their death.
There is nothing like a global pandemic to make you reevaluate your own mortality. Some life insurance companies have reported a 50% increase in life insurance applications since February. If you are one of the many Americans considering purchasing a life insurance policy, make sure you understand how you are covered for coronavirus.
If the pandemic has motivated you to establish or revise your will or trust, you are not alone. As the coronavirus has rapidly spread across the country, the demand for estate planning services has skyrocketed. Estate planning lawyers are flooded with calls and emails from clients of all ages as the outbreak worsens. Some online estate planning platforms reported increases of 143% week-over-week, with an estimated 220% uptick this past week alone.
What Is The Difference Between a Will and a Trust?
There are major differences between trusts and wills, including when the document takes effect, the probate process and various other significant details. A trust takes effect as soon as you create it. You can use a trust to begin the process of distributing your assets before or after your death. A will begins the distribution process upon your death and necessitates appointing a third-party representative to distribute your assets.
Wills pass through probate, where the court supervises the administration of the decedent’s estate. A probate attorney will need to be retained to assist in the probate process except for in California and Wisconsin. Probate can easily swallow 2-4% of your estate assets in attorney fees and court costs. Trusts pass outside of probate, saving time, emotional labor and money.
A will can name a guardian for children in case both parents die, while a trust cannot. Wills allow you to specify funeral arrangements, while trusts do not. Trusts can plan for disability and provide savings on taxes. Trusts can be private but wills are part of the public record.”
Should I Create a Will or Trust?
It is important to evaluate the needs of your estate to choose the proper estate planning documents. Some people may choose to establish both a will and a trust. Whether you chose to establish a will or trust, or both, you should seek the advice of professionals whenever possible. Accountants, wealth management professionals and lawyers can help you create estate documents that are appropriate for your financial situation.
Why Should I Create a Will And/Or a Trust?
When establishing a will or trust, you choose who will receive your assets upon your death. Every state has its own statutes that determine how a decedent’s assets will be distributed. It is important to consider the laws and probate process in your state.
Experts stress the need for the elderly to have up-to-date estate documents but are also encouraging a new demographic during the pandemic-- parents of all ages. Many parents wrongfully assume that if they die their assets would go to their children. In some states, it depends on whether the child is a minor or not.
Asset distributions become even more complicated in mixed families, where there are children and spouses from different marriages or unions. In some states, a percentage of your assets may go to your significant other. In other states, you must be legally married for your partner to receive any of your assets.
When Should I Set Up a Trust or Will?
Experts recommend setting up your estate as soon as possible and not worrying about creating the “perfect” document. Set up the best document you can, without being paralyzed by indecision. With constant changes taking place in a lifetime, you will likely need to revise your documents down the line anyway.
What Is the Process of Creating a Will or Trust?
The process for establishing a will or trust ranges largely and depends on your specific needs. For some people, establishing a will requires multiple visits to an attorney and large stretches of time in between. While trusts offer more asset control, they are usually more expensive and complex to set up.
The estate planning process will likely be longer if your documents include information regarding power(s) of attorney(s), living wills, health care surrogates or other provisions. The probate laws of all 50 states presume the legitimacy of a will executed under the supervision of an attorney.
For very simple estates, or for people who do not have the financial means to contract a lawyer, there are other options available, like LegalZoom and Rocket Lawyer. Online will services are especially useful for essential workers during the pandemic who have less time on their hands and are at a higher risk of contracting coronavirus. In some states, you can remotely execute estate documents using online tools and services. If you decide to use an online estate planning service, make sure you are working with a reputable provider that understands and complies with your state-specific standards.
It is important to note that although it’s better than having no will at all, an online do-it-yourself will, created without attorney supervision, is more likely to be challenged in probate court. Probate proceedings can be costly, time-consuming and emotionally taxing for your heirs.
How Much Does it Cost to Establish a Will or Trust?
The cost of drafting a will or trust largely depends on how detailed your estate is and any professionals you contract to assist you. Trusts are generally much more expensive than wills to establish. Estate planning lawyers will typically charge a flat fee or bill hourly.
Depending on where you live and how complex your estate is, a lawyer may charge you anything from hundreds to thousands of dollars to draft or revise a trust or will. An online website like LegalZoom will cost anywhere from $35 for financial power of attorney to $329 for a bundle of estate planning documents plus a telephone consultation with a lawyer.
How Is the Pandemic Changing the Process of Establishing a Will or Trust?
Although lawyers can draft your documents from their remote offices, electronic signatures from various parties may not be recognized as legally valid. Clients and lawyers are doing their best to navigate these legalities during the pandemic.
Clients are using video services to contact their lawyers and notaries as a means of practicing social distancing. Obtaining signatures from the required witnesses has become tricky too. Some lawyers are video recording meetings that require witnesses or notaries in order to provide a digital record of signatures.
A large hurdle in the estate planning process during the pandemic is the notarizing process. Often, all signing parties must be physically present in the same room when the document is signed in order for it to be legally valid. In some states, you need two witnesses and a notary to establish a valid will. In other states, you only need only one witness.
As of March 26, 2020, only the states of Virginia, Texas, Nevada, Michigan, Minnesota, Montana, Ohio, Tennessee, Florida, Idaho, Kentucky, Oklahoma and North Dakota were fully set up to perform remote notarizations. Many governors are allowing exceptions to the rigid state laws that surround notaries. States that will temporarily authorize remote online notarizations include Alabama, Colorado, Connecticut, Illinois, Iowa, Maryland, New Hampshire, New York, Pennsylvania, Vermont, Washington and Wisconsin. The National Notary Association provides an up-to-date list of states that recognize remote (online) notarizations during the coronavirus pandemic and additional details about the notarizing process.
What if I Am Already Sick?
If you are already sick, you may want to consider establishing a power of attorney, also known as an agent. You should only name someone as an agent that you fully trust with your most important decisions. You should also provide your agent with detailed descriptions of their responsibilities and copies of all relevant documents.
Your agent will be able to make financial and legal decisions for you on your behalf when you are unable to do so. A durable power of attorney takes effect immediately. Although an agent is not able to make changes to or establish a will on your behalf, your agent can help with important financial duties should you not be able to perform them. With a durable power of attorney, your agent can perform tasks such as filing taxes and covering premiums for life insurance, which may otherwise lapse.
What Do Traditional Life Insurance Policies Cover?
Standard life insurance policies cover death by any cause, at any time and in any place. The only exception is death by suicide. If you die within the first two years of purchasing your life insurance policy, you will be paid on a “graded death benefit” amount, not for the full amount you are insured.
Traditional life insurance policies are not instant and require careful planning. There are several steps required for getting a traditional life insurance policy, including:
- Completing the application
- Getting a life insurance medical exam
- Sending in medical records
- Verification of information and a review by your life insurance company
Will My Life Insurance Cover Coronavirus?
If you already have life insurance, your coverage includes death by coronavirus while on U.S. soil and abroad. Even if you travel to an area with an outbreak, an active life insurance policy covers death caused by a pandemic.
If you are currently applying for a life insurance policy, you may not be covered for coronavirus. You may also experience a delayed application process or higher premiums while applying for life insurance during a pandemic. It is important to remember that life insurance policies are not active until you have officially signed the proper documentation supplied by the life insurance company and paid your first premium in full.
Trusts and Wills During the Coronavirus Pandemic
If you have coronavirus during your application process, you may not be able to obtain life insurance coverage. For more on how coronavirus affects life insurance coverage visit here.
The best time to begin the life insurance policy application and will writing processes are now. Here are 25 questions you should ask a life insurance company when purchasing a life insurance policy. Enter your zip code below to begin shopping for a life insurance policy that will provide both you and your family peace of mind both during and after this pandemic.
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