When it comes to effective estate planning, there are few components more essential than a person’s last will and his living trust. Without at least one of these two planning vehicles, an individual’s assets will end up being apportioned by the state in accordance with whatever intestate laws are in effect at the time. Obviously, no one with any sort of transferrable assets wants to see that happen. To avoid it, however, you need to choose an estate planning option. That requires a basic understanding of both wills and trusts so that you can determine which one best suits your needs.
Chances are that you already have at least some rough idea about wills and what they accomplish. Put in its simplest terms, a will is a document that declares in detail precisely how you would like your property distributed after you pass away. The document can also include important personal preferences such as how you would like your children to be raised, who gets your pets, and what kind of party you would like your loved ones to throw to celebrate your life.
This document can be amended throughout the remainder of your life, or it can be revoked in its entirety. It does not actually become effective until you pass away, which means that its provisions are unenforceable while you are still alive. Furthermore, the will provides no escape from the probate courts, since the enforcement of its provisions will require court supervision. As you might expect, the probate court process is open to public scrutiny – and that alone causes many decedents to turn to other options for their estate planning needs.
About the Living Trust
The living trust is the most commonly used alternative to the will. As the name suggests, a trust is established while you are alive, and creates a legal arrangement that allows you to provide another individual or entity fiduciary authority over your estate. That authority comes with a responsibility to ensure that the estate and its assets are managed with the interests of the named beneficiaries in mind. Living trusts come in two basic forms: the revocable trust which can be revoked or altered while you are still alive, and the irrevocable trust which can only be modified with the beneficiary’s permission. Since the latter essentially cedes control over all ownership of the assets, most people choose to rely on the revocable version.
Once you create a living trust, your assets are retitled so that they become the property of the trust. That transfer of ownership has one distinct benefit that a will cannot provide: it enables those assets to escape the probate process. In addition, trusts afford greater privacy, since the distribution of assets owned by the trust is not readily available to the public. Living trusts are also a great way to plan for decision-making responsibility in the event that you eventually become incapacitated.
Disadvantages of Each
There are clear disadvantages to each option as well. For example, because wills are subject to probate, their provisions don’t receive the privacy benefits available to a trust. In addition, there are court and lawyer fees attached to the probate process that can reduce the value of the estate by a noticeable amount – as much as 2-4% in some jurisdictions. That latter disadvantage, however, is at least somewhat offset by the fact that the setup costs and retitling fees associated with trust establishment are greater than those involved in the creation of a will. In either case, there are costs involved. The trust costs tend to be attached to the creation of the estate plan, however, while the cost of a will mostly rest with the probate process.
Comparing the Two
Obviously, there are attractive elements attached to each option. Wills provide a greater degree of flexibility that allow you to not only declare your property distribution wishes, but your wishes for a variety of other concerns as well. On the other hand, trusts do a better job of securing your estate’s full value against probate costs, ensuring that more of your estate goes to the beneficiaries you’ve named. Moreover, a living trust can also provide important incapacity planning benefits that are not available with standard wills.
Some people advocate for the best of both worlds, and create a living trust to manage their advanced medical directives and financial concerns while drafting a will to deal with their final wishes regarding the education of children, disposition of pets, and similar matters. With the financial concerns handled through the trust, there is no need for the will to go through a lengthy probate process – since it does not deal with actual property concerns.
The actual size of your estate matters too. Obviously, someone with few possessions and limited wealth will have far less use for a trust than an individual with a variety of properties and investments. Your estate plan should thus be tailored to your individual situation and life expectations, rather than drafted in a one-size-fits-all manner. With few assets to transfer when you die, it may not matter as much whether your estate goes through probate. That is ultimately a decision that is best made in consultation with your loved ones and your attorney.
Naturally, it is not enough to simply recognize the differences between wills and trusts. To successfully create your estate plan, you need to recognize which one can best meet your individual needs. That can require the assistance of experienced legal professionals who have the estate planning expertise needed to help you with these important decisions. Robert Kulas Attorneys at Law can provide the assistance you need for your estate planning needs and make sure that your estate plan is structured in a way that best reflects your final wishes. Contact us today if you would like to learn more about how our experience and expertise can help you design exactly the right estate plan to meet your asset distribution needs.