One of the first questions people face in estate planning is whether to rely on a revocable living trust or a will as their main tool. While both are essential for making sure your assets are passed on according to your wishes, each has its own strengths and drawbacks. Deciding which approach is best depends on your specific needs, goals, and personal preferences.
What is a Will?
A "last will and testament" is a legal document that spells out how you want your assets to be distributed after you pass away. In a will, you can name beneficiaries, appoint a guardian for minor children, and assign an executor to oversee your estate's distribution. Here's a closer look at the pros and cons of wills:
Benefits of a Will
1. Simplicity. When it comes to a basic estate plan, simplicity can be invaluable. Wills generally require less time and lower costs to establish, making them ideal for individuals or families looking to set up a plan without significant complexity. Further, the straightforward nature of a will can minimize misunderstandings about asset distribution, helping to ensure clarity among your loved ones when it matters most.
2. Cost-Effective for Small Estates. A will is typically the most economical choice for those with limited assets. While the probate process still incurs costs (as well as delays, and other drawbacks which are mentioned below), these are sometimes outweighed by the reduced setup and maintenance expenses of a will versus a trust. This cost-efficiency can help ensure your legacy is passed on without imposing an unnecessary financial burden on your estate, at least at the outset.
3. Guardian Appointment for Minors. Appointing a guardian is one of the most important responsibilities a parent can undertake in their will. By designating a trusted individual, you can help provide stability for your children, minimizing potential disputes or court involvement. This provision of a will offers parents peace of mind, knowing that in their absence, their children will be raised by someone who shares their values and whom they trust implicitly.
4. Control over Asset Distribution. A will enables you to distribute your assets with precision, honoring any unique personal wishes. You may choose to assign specific items to particular people or create provisions for heirs, such as trusts that release funds upon reaching a certain age. This flexibility allows you to retain control over your legacy, ensuring that your assets support and benefit your loved ones in ways that align with your values.
Drawbacks of a Will
1. Probate Requirement. One downside of using a will alone is that it must go through probate—a court-supervised process of validating the will, paying off debts, and distributing assets. The probate process can be an emotional and financial drain, especially if conflicts arise over asset distribution or debts. Beyond the time commitment, probate fees can chip away at the estate's value, reducing the inheritance received by beneficiaries. For some, the public nature of probate is also a concern, as it may expose details of the estate that they would prefer to keep private.
2. Public Record. For those who highly value privacy, the public nature of probate can be a significant drawback. When a will goes through probate, it becomes a matter of public record, opening up potentially sensitive financial details to anyone interested. This transparency may invite unwanted attention, including nefarious actors, and even disputes, making a revocable living trust a more attractive option for those who prioritize confidentiality.
3. Limited Only to Post-Death. A will only takes effect after death so it won't appoint anyone to manage your assets if you become incapacitated. Without a clear delegation of authority for your finances, a court-appointed guardian may need to step in, which can be a costly and emotionally taxing process for loved ones. There also becomes a heightened need for a Financial Power of Attorney alongside your will to address this gap by designating a trusted person to handle your affairs in the event of incapacity.
What is a Revocable Living Trust?
A revocable living trust is a legal arrangement that you can create during your lifetime to hold and manage your assets. You maintain control over the trust while you're alive, and it can be amended or dissolved if needed. When you pass away, the trust becomes irrevocable, and assets are distributed according to your wishes without going through probate.
Benefits of a Revocable Living Trust
1. Avoids Probate. One of the biggest draws of a revocable living trust is that it avoids probate. Since the assets belong to the trust, they're passed directly to your beneficiaries, saving time, money, and potential headaches. By avoiding probate, a revocable living trust can simplify the process of transferring assets after death. This direct transfer can spare your beneficiaries from potential delays and costs associated with probate, allowing them to access their inheritance sooner. For families looking to avoid the additional stress of probate, a living trust can be a meaningful solution.
2. Privacy. A trust remains private even after death, so your estate details aren't disclosed publicly. This can help shield your family from unnecessary scrutiny. The privacy aspect of a living trust can be particularly important for individuals with complex financial situations or those concerned about protecting family details. Since a trust does not go through probate, sensitive information about assets and beneficiaries remains confidential, offering peace of mind for families who prefer to keep such matters out of the public eye.
3. Incapacity Protection. A revocable living trust also provides a plan for incapacity. You can name a successor trustee to take over if needed, ensuring continuous management without court involvement. Incapacity planning through a living trust can provide invaluable protection in the event of illness or disability. By naming a successor trustee, you ensure that your assets will be managed according to your instructions, without the need for court-appointed guardianship. This continuity can reduce stress for your loved ones, knowing they won't have to navigate complex legal proceedings to manage your finances.
4. Control over Distributions. Similar to a will, a trust lets you control how and when assets are distributed, whether in lump sums, staggered payments, or through protective trusts. A revocable living trust allows you to establish specific terms for distribution that can help protect beneficiaries' interests. For example, you might set up a staggered distribution to ensure young beneficiaries receive funds gradually, reducing the risk of mismanagement. This customization empowers you to shape your legacy in a way that best meets the needs of your loved ones.
Drawbacks of a Revocable Living Trust
1. Higher Upfront Cost. Establishing a trust typically involves higher initial costs and more detailed planning, making it a greater upfront investment than a simple will. While this investment may provide peace of mind and probate avoidance, the increased setup fees can be a deciding factor for individuals whose primary focus is cost efficiency. However, it's essential to consider these costs in light of the potential probate savings down the road.
2. Some Maintenance to “Fund” the Trust. For a trust to work, assets must be "funded" into it. This requires re-titling assets, like bank accounts, business interests, and other property, in the trust's name. Thus, every significant acquisition, such as a new property or financial account, needs to be retitled to the trust. Without consistent management, assets that remain outside the trust could end up in probate, effectively defeating one of the trust's primary benefits of probate avoidance. For those willing to take on this maintenance, a trust offers long-term rewards.
3. May be Excessive for Small Estates. For simpler estates, the ongoing costs and maintenance may not be necessary, especially if avoiding probate or preparing for incapacity isn't a priority. For clients in this category, a well-drafted will may meet all their needs without the added expense and upkeep associated with a trust.
Which Option Is Right for You?
The best choice depends on your priorities. If your estate is simple and you are less concerned about privacy or probate, a will can be an efficient solution, offering clear asset distribution, guardian designation, and straightforward planning. Where privacy, probate avoidance, and incapacity planning are key, or for more complex estates, a revocable living trust may be the better option. Though it requires more initial effort and some upkeep.
Our law firm’s goal is to educate and guide our clients through these considerations, so you will be able to achieve the precise goals you want for you and your family. We encourage you to click here to schedule an initial complimentary 15-minute call to learn more and start our planning process today.