Understanding the distinction between a revocable living trust and a will is an important first step in building a comprehensive estate plan.
The Basics of a Will.
A Last Will and Testament is a legal document that directs how your assets will be distributed after your death. Through a will, you can name beneficiaries, appoint an executor to administer your estate, and provide instructions for the payment of debts, taxes, and final expenses. A will is the only document that allows you to formally nominate guardians for minor children. For parents, this makes a will an essential component of any estate plan.
However, a will does not avoid probate. Probate is the court-supervised process required to validate the will and oversee the transfer of assets to beneficiaries. Depending on the jurisdiction and the complexity of the estate, probate can involve court fees, legal expenses, waiting periods, and public filings. Because probate proceedings are generally a matter of public record, certain financial details of the estate may become accessible to others. If a person owns real estate in more than one state, probate may be required in each state where property is located, which can increase both time and cost.
It is also important to understand that a will has no legal effect during your lifetime. If you become incapacitated, a will does not authorize anyone to manage your financial affairs. That authority must come from other planning documents, such as a durable power of attorney.
The Basics of a Revocable Living Trust.
There are many types of trusts and, for purposes of this article, the type of trust being referenced is a revocable living trust. A revocable living trust is a legal entity created during your lifetime to hold title to your assets. In most cases, you serve as the initial trustee and maintain full control over the trust property. Because the trust is revocable, you may amend or revoke it at any time while you are competent.
When properly funded—that is, when assets are retitled in the name of the trust—a revocable living trust allows those assets to bypass probate at death. Funding the trust is a crucial step because any asset (with some exceptions) left outside the trust may cause your estate to still go to probate. Therefore, fully funding the trust is a step you should be meticulous with and have an estate attorney help guide you through the process.
Probate avoidance can reduce administrative delays, minimize court involvement, and maintain greater privacy, since trust administration is generally not handled through public court filings. In addition, the trust provides continuity of asset management if you become incapacitated. A successor trustee can step in to manage investments, pay bills, and handle financial matters without the need for a court-appointed guardian or conservator.
Unlike certain irrevocable trusts used for tax planning, a revocable living trust does not remove assets from your taxable estate. Its primary benefits relate to probate avoidance, privacy, and incapacity planning rather than estate tax reduction.
If I Have a Trust, Why Do I Still Need a Will?
In many situations, the most effective estate plan includes both a revocable living trust and a will. Even if a trust is the centerpiece of your plan, a will—often referred to as a pour-over will—is still necessary. In the event an asset is left outside of the trust during your lifetime (due to improper funding or another reason), the pour-over will can be probated to administer that asset. The pour-over will directs that any assets omitted from the trust be distributed to the trust by the Executor. From there, the trustee will administer and distribute assets according to the trust terms. While those assets may still require probate, the pour-over will ensures that they are ultimately administered according to the terms of the trust. A will also remains necessary to nominate guardians for minor children.
Which Option Is Less Expensive?
A will is often less expensive for an attorney to prepare; however, the client’s estate will still have attorney fees and administrative costs during the probate process. While a trust typically costs more to prepare up front, it saves money later on with no probate costs. In addition to preparing the trust, it is well worth paying for the attorney to help you fund your trust to avoid the pitfalls of inadequate funding as described above. Careful planning with the trust can help to avoid probate and that, in turn, can provide peace of mind.
Which Option Is Right for You?
A will may be sufficient for individuals with relatively straightforward estates and minimal concerns about probate. A revocable living trust is often the tool proposed by attorneys for those who own real estate in multiple states, have larger or more complex estates, have a goal of avoiding probate, value privacy, or want built-in incapacity planning.
Every estate plan should be tailored to the individual. An experienced estate planning attorney can evaluate your specific circumstances and recommend a strategy designed to protect your family, reduce administrative burdens, and help your wishes to be carried out efficiently.
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