Most estate plans have both a will and one or more trusts. Usually one is more important than the other and serves as the foundation of the estate plan with the majority of the estate passing through it.
You have to decide the role each vehicle will serve in your estate. One basic choice is to own most assets in your name and determine their distribution through your will. The alternative is to have a revocable living trust own most of your assets and have the terms of the trust agreement determine how assets are distributed. The best choice for one person might not be best for another.
An important difference between a will and a trust is property subject to a will goes through the probate process while property that was owned by a trust when a person passed away avoids probate. Probate has both pluses and minuses.
Probate’s major disadvantages are its well-known cost and the delay it causes in distributing the estate. 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 adopted versions of the Uniform Probate Code, which was intended to streamline probate, making it less expensive and time-consuming. Check with your estate planner about the local process before determining how important it is to avoid probate.
There’s no privacy in probate. The will is filed with a court and is available to the public. Yet, some people believe the public scrutiny is an advantage, because it provides checks and balances.
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 follow the legal formalities of the trust. Be sure to name the trust as legal owner of property and manage it as the trustee. 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.
Many people have trusts drafted but then don’t transfer legal title of their property to the trusts. So, the trusts have no value.
Cost is a consideration. 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 pass away title to property passes from you to the estate and its executor. Eventually it passes to the final beneficiaries. 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.
Every estate should have a will and is likely to have at least one trust. The issue is which vehicle you 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.
