Do I need a Will or a Trust?

May 25, 2015 | Estate Planning

Clients frequently ask “Do I need a will or a trust?” The answer depends on the client’s estate planning goals. For most people, the chief objective of estate planning is avoiding probate.

Probate is undesirable for several reasons. First, probate is expensive. Any estate (assets such as real estate and personal property) that passes through probate will lose a portion of its value due to court costs and fees. In many cases, that can mean thousands of your hard-earned dollars passing to the government and other parties simply because of poor planning.

Probate is unfavorable for other reasons. Probate takes a long time: a minimum of 6 months, but often over 1 year. Probate is also public: your assets and debts are public information to any interested party. Finally, your family has limited control over the process.

If a person dies without any plan, they are said to die intestate and state statute determines distribution. Probate will be necessary. If a person dies with a will only, they are said to die testate, and, while the will determines distribution, probate will still be necessary. However, as explained in this post, everyone needs a will. A will is necessary because it serves as a catch-all or “safety net” for property that is forgotten or omitted from an estate plan.

As emphasized, we recommend maximizing the use of non-probate transfers of real and personal property, and/or a revocable living trust. Each of these devices avoids probate, helping to save you money and time.

Therefore, the question is really “Do I need non-probate transfers or a revocable living trust as my primary estate planning tool?”

In short, the more complex an individual’s estate plan, the more likely it is that a revocable living trust is the better estate planning option. An estate plan increases in complexity as the beneficiaries and property increase.

Many people have an estate that is limited to a home, vehicles, bank accounts, investment / retirement accounts, and life insurance. Especially for a traditional family with the straightforward goal of leaving property to adult children, non-probate transfers are appropriate, cost-effective, and timely.

In this situation, a beneficiary deed would allow the home to be transferred without probate. A transfer on death title designation would allow the vehicles to be transferred, and a pay on death designation would allow the bank account proceeds to be transferred, both without probate. Finally, appropriate beneficiary designations would allow the investment / retirement accounts and life insurance to be transferred without probate.

However, the appropriateness of a revocable living trust increases as a family’s situation becomes more complicated. For instance, a blended family involving a step-parent and step-siblings often requires additional estate planning because the law distinguishes between a natural parent and a step-parent, as well as between a natural child and a step-child. Similarly, the existence of property such as a family business or vacation home typically requires a more complex estate plan because of how the family desires the property to be transferred and used.

Importantly, a revocable living trust is a great deal more flexible than non-probate transfers. For instance, a revocable living trust allows the settlor (the individual who creates the revocable living trust) to create a plan for the control and management of property in the event that he or she becomes incapacitated. It is also possible to arrange for the care of minor children, adult children who are irresponsible, and special needs children.

The drawbacks to a revocable living trust include the fact that it is more expensive to create and it requires active management after it is established.

If you have additional questions about estate planning or are ready to have an estate plan prepared, call or come visit the estate planning attorneys at the Paul Law Firm. Consultations are always free!

Related Topics



Non-Probate Transfers: Personal Property

Non-Probate Transfers: Real Property

Revocable Living Trusts