There are two tools available for passing the bulk of your legacy to others, and the best choice for one person might not be a good choice for another. The foundation of your estate plan can be either a will or a trust, usually a revocable Living Trust. They’re not exclusive. Most estates have both a will and one or more trusts. But usually one document controls how the bulk of the estate is distributed and implements your important decisions.
Each tool has advantages and disadvantages. The best choice for you depends on your situation. Consider the differences carefully.
A key distinction between a will and a trust is that the property that is subject to a will goes through the probate process. The property owned by a trust avoids probate, which has both pluses and minuses. The major disadvantages are the well-known cost and delay of probate.
The probate process requires that an inventory of the estate’s assets and liabilities be submitted to a court. The assets can’t be distributed to heirs until the court approves. The court charges probate fees, and a lawyer or executor (or both) often will be involved and charge fees. In some states, it can be costly and expensive for even small estates to go through probate.
Probate is not lengthy and expensive in all states. A number of states have adopted versions of the Uniform Probate Code, which was intended to streamline probate, making it less expensive and time-consuming. Some states adopted streamlined probate for most estates, reserving the full probate process for the most valuable estates. Check with your estate planner about the local process before determining how important it is to avoid probate.
Lack of privacy is another disadvantage of a will. A will is filed with a court and is open to the public. The wills of many celebrities are available on the internet. Bing Crosby is said to have revised his estate plan after his first wife died and the details of her will were made public. Crosby shifted most of his assets to living trusts to avoid probate and public scrutiny.
Many celebrities now transfer the bulk of their estates through trusts. Burt Reynolds, for example, appeared to disinherit his son in his will. But news reports have indicated the son was amply provided for through a trust that avoided probate and public scrutiny.
Yet, some people believe the public scrutiny of a will and probate is an advantage.
The probate process provides checks and balances. In addition to the court reviewing the details, heirs and potential heirs can see the asset inventory that is presented to the court and the details of how the estate is to be distributed. They can determine if assets are missing or someone appears to have persuaded the deceased to change how assets are to be distributed.
A will is more likely to be challenged than a trust. Trusts rarely are challenged, partly because their details aren’t public. Also, the rules for challenging wills are well-established, while there is less law concerning challenges to trusts.
Some people think using primarily a will instead of a living trust is more
efficient over the long term, because it is easy to transfer assets in or out of your estate when they are owned in your name. Anything you own at your passing automatically is included in your estate.
With a trust, you have to be sure to name the trust as the legal owner of property. We’ve discussed this in the past. Many people have trusts drafted but then don’t transfer legal title of their property to the trusts. So, the trusts have no value. You have to be sure the trust has legal title to the assets to reap the benefits of the trust.
Cost might be a factor for some. A will usually is less expensive to have prepared than a trust.
Some attorneys believe trusts are less likely to be updated. They say people know when a will needs to be updated but often incorrectly believe a trust doesn’t need to be revisited. A living trust at least theoretically provides for a smoother transition of management and ownership of property.
With a trust, you initially serve as trustee and manage the property. If you become disabled or pass away, the successor trustee (or trustees) you named in the trust agreement automatically takes over management of the property. After you pass away, the trust property is managed and distributed according to the terms of the trust. The courts aren’t involved.
When you use a will, however (after you die the title to property passes from you) to the estate and eventually to the final beneficiary. The probate court supervises the process. If you become disabled, whoever holds your power of attorney has to present it to financial institutions and have them accept it before your assets can be managed. If there’s no power of attorney or financial institutions won’t accept it, the courts become involved.
Yet, trustee transitions aren’t always smooth. Financial institutions and others who deal with the trust must be convinced to accept the authority of a successor trustee.
Financial firms, in particular, require a high level of substantiation before they will accept the successor trustee’s directions. While a successor trustee might not have to go to court to take actions, it could take some time and expense to complete the transition. It is best to be sure everyone who deals with you as trustee is familiar with your named successor and your plans.
As mentioned, you have to follow the legal formalities with a trust. The trust has to be the owner of the property. That means deeds to real estate must be reissued in the trust’s name. Titles to vehicles and some other assets have to be reissued. Names on financial accounts might have to be changed.
While a living trust probably saves time and money in the long run and provides other benefits, the process isn’t always smooth. In the short run, it could take more time and possibly more money for the initial set up than a will. With the trust, you have to find one or more people able and willing to serve as successor trustees. They must be willing to step forward and assert their position when you appear to be disabled, even if you resist.
With a proper estate plan, however, you have the same issues when selecting agents to act for you under the power of attorney and to act as executor of your estate.
Every estate should have a will and is likely to have at least one trust. The issue is which vehicle you will use to transfer the bulk of your wealth to the next owners. Work with your estate planner to determine which fits best with your estate and your goals for cost, efficiency, privacy and more.