Authored by: Renee Q. Boyd – Senior Associate Attorney
During the estate planning process and discussions with clients, I am often asked “should I create a Last Will and Testament (Will) or should I create a Revocable Living Trust (Revocable Trust)?”. While both documents are effective estate planning tools to use to indicate who will receive your assets, Wills and Revocable Living Trusts have different and specific benefits.
All estate planning should begin with assessing your current situation, your goals and your needs. After this assessment is complete, the next step is to determine which tool can best help you meet your goals and protect your family. It is not a matter that one tool is better than the other. The decision of whether to use a Will or a Revocable Trust should be based on your goals and other factors such as the size of your estate, the complexity of your distribution wishes, your need for privacy over your assets, your property and your estate planning budget.
Wills:
Wills are simple legal documents that provide instructions of how to distribute property and assets to beneficiaries after your death. Think of a Will as a set of instructions for after you are gone. Wills do not go into effect until after you pass away.
All assets that are transferred to your beneficiaries via a Will must go through the probate process before they are distributed. Probate is a legal process, supervised by a court, in which the Will is first proven to be valid and then accepted into probate. The person you name in your Will to administer your wishes, your Personal Representative, must go to the probate court in the county in which your resided when you died and file the Will for probate. When the Will is accepted into probate and the estate is opened by the court, your Personal Representative must also provide periodic reports on your estate’s administration to the court. All details of your estate, including the property and assets you owned and to whom it was left, become a matter of public record.
The probate process is a court supervised process which can be lengthy and expensive. Legal fees, Personal Representative fees, and other estate administration costs must be paid before assets can be distributed to your beneficiaries. Depending on the state and on the complexity of your circumstances, this process can easily take nine to 24 months to complete, and your assets can’t be distributed to your beneficiaries until it is complete.
It is important to keep in mind, however, that it is only your assets that are to be distributed via your Will that are subject to this probate process. Assets that bypass the probate process are considered non-probate property and are paid directly to the beneficiary or co-owner upon your death. These non-probate assets include:
- Property that is jointly owned, with survivorship rights. When one owner dies, the other owner automatically gets the deceased owner’s interest in the property.
- Property with a named beneficiary. Common examples include life insurance policies, IRAs and 401(k) accounts. Upon the death of the account or policy owner, the assets are paid directly to the beneficiary.
- Other accounts, such as bank accounts, with a payable on death (POD) designation or property, such as vehicles, with a transfer on death (TOD) designation.
- Assets that are either titled in the name of a trust or designate the trust as the beneficiary. Many people set up Revocable Trusts specifically to avoid probate.
Revocable Trusts:
A Revocable Trust is another estate planning tool and can be used as an alternative to a Will. While living trusts can be revocable or irrevocable, Revocable Trusts are the most used type of trust for estate planning purposes because they allow you to maintain control over your trust and make changes to it during your lifetime. Because you maintain control over the assets in a Revocable Trust, these assets are part of your estate.
A Revocable Trust has key benefits not available with a Will which should be considered in determining which tool is the best solution to meet your estate planning goals. These benefits include:
- Revocable Trusts avoid probate. One of the most attractive features of a Revocable Trust it that assets held in it are not subject to the probate process and can be distributed to your beneficiaries, according to your wishes, without court oversight. Your property is distributed according to the terms of your trust and the trust allows the assets to be distributed to the beneficiaries faster than if they were subject to the probate process.
- Revocable Trusts can avoid multiple probate processes if you own real property in more than one state when you die. Ancillary probate is a type of probate proceeding that must occur in addition to the primary probate proceeding, usually as a result of owning property outside of the state in which you resided when you passed away. Ancillary probate becomes necessary because the probate court in the home state does not have legal jurisdiction over the out-of-state property. This is avoided with a Revocable Trust because assets and property owned by the Trust pass directly to the beneficiaries without going through probate.
- Revocable Trusts maintain your privacy. A Revocable Trust is a private document that is not filed with or reported to any supervising authority. It remains confidential during your life and after you die.
- Revocable Trusts maintain control of your assets if you become incapacitated. Unlike Wills that do not become effective until you die, a Revocable Trust is effective immediately upon executing it. If you become incapacitated and are unable to manage and control your property, assets that have been placed in your Revocable Trust will be managed and can be controlled by someone you have previously and purposefully named to serve in that role. This named person can immediately step in and manage your property, without requiring court intervention.
The person who creates the Revocable Trust is the grantor. The Revocable Trust is a legal agreement in which the grantor defines the purpose of the trust, the types of assets that can held in the trust, the duties and responsibilities of the trustee and the beneficiaries who will receive the trust assets when the grantor dies. The trustee is the person who is responsible for the assets in the trust on behalf of your beneficiaries. Because the trust is revocable, the grantor can retain complete control over the trust assets during his or her lifetime, can change beneficiaries, or even revoke the trust entirely. The grantor can appoint him or herself as the trustee or can assign a third party to serve as trustee.
The Revocable Trust is in existence during your lifetime. Once the Revocable Trust is established, the grantor (you) transfers assets and property into the trust, making the trust the owner. This is known as funding the trust. You, however, remain in complete control of the assets and property during your lifetime. And during your lifetime, the Revocable Trust does not require a separate tax identification number or the filing of a separate tax return.
While a Revocable Trust is an estate planning tool that is an alternative to a Will, it is strongly recommended that if you use a Revocable Trust, you also create a Will. This is known as a Pour-Over Will and it works in conjunction with the Trust. This Will covers assets that the grantor did not put into the Revocable Trust before their death, whether by accident or on purpose. The Pour-Over Will directs that these assets go to the Revocable Trust (are “poured over” to the Trust) and be distributed according to the grantor’s intentions contained in the Trust.
Summary:
In summary, it is not a matter that a Will or a Revocable Trust is the better option. It is a matter of which tool will best help you achieve your estate planning goals. First, define what your goals are and what is of most importance to you. Both Wills and Revocable Trusts are excellent tools. The tool that is best for you must consider:
- Your estate planning timeline – how quickly you need put an estate plan in place
- Your estate planning budget
- Your level of assets
- Do you want to keep ownership of your assets and property before you die?
- Level of ease or difficulty in administering your estate after you die
- Privacy concerns
To begin the estate planning process, schedule a no-cost consultation with one of our estate planning attorneys at Elville and Associates. During that meeting, we will work with you to define and understand your goals, answer your questions and create a plan together that best meets your needs and addresses your concerns.
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