Trust Point regularly receives questions from clients about their estate plans. One of the most common of these questions is whether they should use a revocable living trust vs will to pass property to their heirs. While there is no one-size-fits-all answer to this question, the information that follows should arm you with the key information that you need to decide which approach works best for you!
Understanding the Basics
Regardless of how you choose to structure your estate plan, Trust Point advises that you hire a licensed and reputable attorney to help you plan and draft your documents. While any person can technically draft their own will or trust, an attorney will ensure that it is both valid under state law and effective in distributing property as intended.
The first step in comparing a will to a revocable trust is understanding how a will is used after the death of its signer, who is more formally known as a testator. After their death, the testator’s will must be probated. This is the process whereby a will is reviewed by a court to determine whether it is valid and authentic. Then, if the will is found to be valid, the court proceeds to name a personal representative who will be responsible for carrying out the will’s terms. The personal representative, who may be referred to as the executor, is subject to the court’s ongoing supervision throughout this process, and may also require the assistance of an attorney.
A revocable living trust is often used as an alternative to the traditional probate process. It is a legal entity that a person creates and funds during their lifetime that is separate and distinct from that person. However, people who create these trusts, known as grantors, typically name themselves as the trust’s beneficiary and initial trustee, and generally use and control the trust’s assets during their lifetime in the same manner as they had before creating it. Similar to a will, the document outlines how the grantor’s property should be managed after their death, and may later be amended or revoked.
Why Many Choose a Living Trust Over a Will
Revocable living trusts have become popular in recent years for many reasons. First, and most importantly, assets owned by a trust are not subject to probate after the grantors’ death. This can significantly reduce the time and expense associated with transferring assets to heirs without introducing any adverse income, estate, or gift tax consequences. Further, while probate files are a matter of public record, a revocable trust protects the privacy of the grantor and his or her heirs.
Revocable living trusts also have other benefits beyond probate avoidance. For example, they usually include a succession plan that applies not only upon the grantor’s death, but also upon their resignation or incapacity. This allows for smooth transition of money management and bill paying in a grantor’s later years rather than expensive and sometimes degrading court supervised guardianship proceedings. A revocable trust is also useful for those that own real estate in multiple states, as it eliminates the need for ancillary probate procedures in the states where the properties are located.
While there are benefits to using revocable living trusts in estate planning, there are also some drawbacks to be aware of. Most notably, a trust is only effective in avoiding probate if a Grantor does a thorough job of retitling assets so that the trust is the legal owner of these assets. This often requires more work, planning, and legal expense during the grantor’s lifetime.
In addition, a grantor of a revocable trust should typically create a pour-over will, which is a precautionary step taken to ensure that any assets that they did not retitle during their lifetime, which would thus be subject to probate, are transferred to their trust. While the time and effort associated with these tasks should not be overlooked, they are most often far less burdensome than the time and expense associated with the probate process.
Regardless of whether you choose a will or revocable trust to pass property to your heirs, it is vital that you review any beneficiary designations and transfer-on-death or pay-on-death designations. Typically, these designations are used for qualified retirement plans, IRAs, and life insurance, but they can also be used for bank and brokerage accounts. While these arrangements go by different names, they are all means by which assets pass to your beneficiaries in a manner that is wholly independent from both your probate estate and your revocable living trust. If you do not remove these designations, you might not get the result you tried to achieve with the dispositive provisions of your trust or will.
Whether you’re creating a will or a living trust, we’re ready to work with you and your attorney. At Trust Point, we’re committed to making things simple, easy, and stress-free for our clients. Throughout the entire estate planning process, our team of experts is here to offer expert guidance so that you can rest assured knowing your financial assets will be managed in a manner that is consistent with your values, both during and after your life.