So, you have decided to take control of your estate planning and are given two choices: will-based planning or trust-based planning. If the differences between the two confuse you, you are not alone! It’s always recommended to consult with an estate planning attorney to determine which is best for you. However, it is important to understand the fundamental differences between the two.
A will is a written document that is signed and witnessed and only goes into effect when you die. If you choose will-based planning and you own property in your name, your estate must go through probate. In contrast, a revocable living trust is a legal document that establishes a formal relationship where you (the trustmaker) name a trusted individual (the trustee) to manage assets for your benefit and the benefit of others (your beneficiaries). The trust is effective during your lifetime, during any period of disability, and after your death. If you fund the trust properly by moving your assets into the trust, then the trust will avoid probate when you die.
THE PROS OF A REVOCABLE LIVING TRUST
Plan for incapacitation and avoid court conservatorship. A revocable living trust allows you to name a trusted person as “successor trustee” to manage your assets that have been properly transferred to the trust, if you become incapacitated and are unable to manage your own affairs. In contrast, a will becomes effective only upon your death, so a will won’t help in avoiding court conservatorship and guardianship proceedings if you become incapacitated during your life.
Avoid probate. Assets that have been moved into a revocable living trust, whether by retitling or beneficiary designation, do not go through probate to be distributed to the intended beneficiary. Assets that pass using a will, and do not have a beneficiary designation or “payable on death” designation, must be probated. The probate process is a court process that is designed to wrap up a person’s affairs and distribute assets to beneficiaries. The problem with probate is that it is public, costly, and time-consuming, sometimes taking years to resolve.
Creditor, judgment, and divorce protections for your beneficiaries. A trust can be crafted to include protective sub-trusts which can provide creditor, judgment, and divorce protection on the assets within them. Similarly, if you give your beneficiaries their inheritance in trust—as opposed to outright—then when you die, that inheritance will be protected from creditors, judgments, and divorce for your beneficiaries.
Maintain privacy after death. Most people don’t know this, but a will is a public document. A trust, however, is private. If you have a will, and are going through probate, then anyone, including nosy neighbors, can see what you owned and who your beneficiaries are. A trust allows you to maintain your loved ones’ privacy after death.
THE PROS OF A WILL
The ability to name guardians for minor children. A will–not a living trust–can be used to name guardians to care for minor children. Depending on the state law, there may be another document that can be used to name a guardian; however, a revocable trust is not that document. If you chose trust-based planning, your attorney will draft a pour-over will to name guardians for minor children.
Less expensive to set up and less paperwork. A will is generally less expensive to set up than a trust and requires less of your time. This means that you don’t need to fill out a ton of paperwork to move your assets into a will. In contrast, for a trust to be effective in avoiding probate, your assets need to be moved into it, which requires completing change of ownership and beneficiary forms for each of your assets.
SIMILARITIES OF WILLS & TRUSTS
Both wills and trusts can be amended throughout your life to make changes to beneficiaries and the fiduciary relationships within each document.
THE BOTTOM LINE
Everyone’s situation is different, and whether a will-based plan or trust-based plan is better for you is something that you should discuss with an estate planning attorney. Whichever route you choose will always be better than doing nothing.
If you have questions, please contact us to set up a consultation.
This post was written by attorney Ramah Jaradat, an estate planning associate at JM Law.
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Disclaimer: Materials prepared by JM LAW, PLLC are for general informational purposes only. Educational material does not create an attorney-client relationship and is not an offer to represent you. You should not act or refrain from acting based on information provided.