Wills & revocable living trusts
There are two main “tools” to use when it comes to estate planning: wills and trusts. There are comparative benefits and drawbacks of both tools. One of the major items we will discuss when you schedule your Strategy Session is what type of plan best suits your and your family’s needs. Let’s take a quick look at some of the need-to-knows about wills and revocable living trusts.
At its simplest, a will is a legal document that names your heirs, distributes your “probate estate” (which is any property or asset you own in your own name and not jointly titled), names guardians for your minor children, and identifies the people who will carry out the instructions contained in the document. Wills are necessary parts of any estate plan, even ones that primarily operate through a Revocable Living Trust.
A revocable living trust (RLT) is a legal entity that you create to hold your property and assets. How the trust treats the property you have funded into it is controlled by the terms of the trust itself. People with RLTs retain the right to use all the trust property in the same way that they would have if the property remained in their own name. The difference is that a Revocable Living Trust does not need to go through probate and permits more flexibility than a straight will-based estate.
Benefits of Wills
- Distribute your property according to your wishes: A will ensures your wishes on property distribution are respected. If you want to leave your business with a specific individual who you think is most suited to follow in your footsteps, that’s exactly what will happen if you put such wishes in your will.
- Tax benefits: Careful consideration as to who receives what assets, at the tax rates that apply to different people and/or assets, can help you minimize tax implications.
- Specify important wishes after death: A will can specify the kind of funeral you want, guardians for your children, and those who are supposed to execute your wishes.
- Avoid inheritance disputes: Most importantly, wills avoid property disputes among children and other parties who may have a stake in your property when you die.
Drawbacks of Wills
Like everything else, there is a good and bad side to wills. The main drawbacks include;
- A will won’t prevent probate: Wills don’t stop probate – a court process that involves proving a will. The probate process can be costly. Probate is also a long process that can take years, with hearings and proceedings, among other activities like gathering assets and settling debt. The process can take years. If you don’t want your estate to be diminished through probate fees or your heirs to wait perhaps for years to inherit your property, a will isn’t the best estate planning tool for you.
- A will won’t protect your property from creditors: During probate proceedings, creditors can submit formal claims to the executor of your will demanding to be paid. Creditors who follow the due process can get paid using the inheritance property. However, they must submit formal claims within a specified amount of time. Generally, if you’d prefer creditors to write off your debt when you pass on instead of bothering your family, consider other estate planning tools.
- Lacks privacy: A will stops being a private document when subjected to a probate process. Unlike trusts, wills must be filled in probate court before they are deemed valid.
Benefits of Trusts
- No probate process: Unlike wills, trusts aren’t subjected to the tedious, time-consuming, and costly probate process.
- Advanced asset protection: If you seek more sophisticated asset protection, trusts are a much better option. It’s quite common to pair Revocable Living Trusts with irrevocable trusts in the form of an AB trust or other type or irrevocable trust. It’s important to note that a Revocable Living Trust doesn’t perform the same type of asset protection function for several complicated legal reasons we’d be happy to explain if you’re in the mood for a nap.
- Privacy: Unlike wills, trusts are private documents, and with the aid of what’s called a Pour-Over Will, Revocable Living Trusts protect your estate from probate. Individuals with concerns about privacy are better off setting up trusts.
- Tax benefits: If trusts are set up properly by experienced estate planning lawyers, they can completely reduce the taxable property or eliminate the estate tax.
Drawbacks of Revocable Living Trusts
- Revocable Living Trusts don’t provide protection from creditors: Because a Revocable Living Trust keeps all trust property under the control of the Grantor (you), it will not provide the shield from creditors that an irrevocable trust would.
- Cost: Wills-based estates are generally a bit less expensive to set up and maintain than trusts. The cost delta at McGrannLAW is not significant, but Revocable Living Trust based estates are more complicated to draft and the pricing reflects that.
Ask a simple question to an attorney, and we’ll almost always give you the same answer: it depends! In this case, one of the primary reasons you want to work with a seasoned estate planning attorney is so that he or she will be able to synthesize the information you provide in order to make specific and tailored recommendations for a plan that will best suit your unique life.
Sometimes a carefully crafted will-based estate is plenty sufficient to meet your needs; sometimes you’ll need far more sophisticated planning to achieve your goals. Let’s get a step closer to determining how best to care for you and your family: schedule your Estate Planning Strategy Session below. We hope to meet with you soon!