Many people assume that a Will and a Trust are essentially the same thing. Nothing could be further from the truth! While both can be effective for transferring assets to loved ones after your death, they have important differences.
The Advantages of a Will
A Will “speaks at death.” In other words, its provisions are not effective until death. These provisions allow for the effective transfer of your property at your death. Your Will controls assets that are in your name, even if there is a Trust in existence. However, the Will can provide that your assets “pour over” into the Trust.
Since a Will is only effective upon death, it has certain advantages.
Let’s take a look at a few of these:
- Nothing has to be transferred or administered while you are alive.
- Your creditors have a short statute of limitations period to bring any claims against your estate in Probate. Once that time period has passed, they cannot assert any more claims against your heirs.
- Probate is a well-established process. A neutral, third-party (a Judge) is available who can supervise the process, ensure that it is proceeding according to law, and resolve any disputes.
- Creditors and debtors are familiar with dealing with an executor of a Will.
In addition to these advantages, a Will can do things that a Trust cannot do. One of the main things is the ability to appoint a list of Guardians in priority order for any minor children. If you have minor children, you also have the right to appoint a guardian of their person and a guardian of their estates. A guardian of the estate invests and takes care of the property that a minor inherits, while a guardian of the person takes the place of the parent in caring for the minor.
The Advantages of a Revocable Living Trust
A Living Trust is a written declaration and contract in which you state that you, as “grantor,” are transferring your property into a Revocable Living Trust for the benefit of yourself during your lifetime and then for the benefit of your heirs. In other words, the Trust speaks from the moment you create it.
Typically you will be the “Trustee” of your Revocable Living Trust, which means that during your lifetime, you will have complete control over the Trust’s assets. The “Successor Trustee” you name will take control over your Revocable Living Trust in the event of your death or incapacity. In addition, you will have the power to change, amend, or revoke your Trust at any time during your lifetime.
Not only does a Living Trust provide for the disposition of your property (like a Will), but it also offers the following benefits:
- Provides for the immediate transfer of assets after death (if desired): When dealing with a Will, all the property of the estate must go through a process called Probate. This process can take months and sometimes even years. During this process, your heirs have only limited access to your assets. A Revocable Living Trust, on the other hand, allows immediate access by your Successor Trustee and can allow for a smooth, quick transition so that the beneficiaries of your Trust have access to your assets more quickly.
- Allows for a smooth transition of management upon incapacity or death: A Will is only effective at death, therefore it does not provide for the possibility of your incapacitation. A Revocable Living Trust allows for this possibility by having you name a Successor Trustee. This same Successor Trustee will take over immediate management of your Trust upon your death or incapacitation.
- Avoids the expense and hassle of Probate proceedings: The Probate process can be expensive. The assets within a Revocable Living Trust avoid the Probate process completely. Your heirs will most likely get your assets more quickly and with less expense.
- Minimizes estate taxes and defers payment of estate taxes for married couples: Simple Wills expose your estate to the greatest degree of taxation. On the other hand, an estate plan that uses wise tax planning can save your heirs a considerable sum. A Revocable Living Trust can use the Unlimited Marital Deduction and the Applicable Exclusion Amount to help minimize the taxes your estate will owe upon your death and the death of your surviving spouse. A complex Will can also achieve the same tax results.
- Gives you maximum control over the disposition of your assets: With a Will, you can name your executor and your heirs, but it is up to the court to first appoint the executor and then determine if your heirs get their inheritance. With a Revocable Living Trust, you have far more control. A court proceeding is not necessary for your Trust to pass to the Successor Trustee nor is it necessary for the Trustee to have authority to distribute the trust assets. Additionally, with a Revocable Living Trust or a comprehensive Will you can control for specific family circumstances. For instance, if you have children from a previous marriage, you can ensure that your spouse and your children receive fair treatment.
- Allows you to control your assets long after you are gone: Once a simple Will has gone through the Probate process and its provisions have been carried out, it is no longer a “working” document. A Revocable Living Trust and a comprehensive Will, on the other hand, allows you to make provisions for minor children or less responsible adults after your death. For instance, you can provide certain assets at certain ages or even upon satisfaction of certain conditions.
Which Choice is Right for You?
Initially a Revocable Living Trust may cost more with respect to its formation and implementation than a Will, but those costs are usually a small percentage of the amount saved through the avoidance of Probate costs and family turmoil at the time the grantor dies. Additionally, if confidentiality and continuity of ownership are important objectives, then the Revocable Living Trust is the document of choice.
For most people, a complete estate plan is the right way to go. A complete estate plan contains either a simple or comprehensive Will or a Pour Over Will and a Revocable Living Trust, along with other documents such as a Health Care Power of Attorney and a General Power of Attorney. Everyone is different, so what type of complete estate plan you need depends on your particular situation. Consult with a qualified estate planning attorney to determine which course is right for you and your family.