Updated: Feb 8, 2019
I can't tell you how many times I have perspective clients come for an estate consultation telling me they think they need a will. The misconception I often hear is “I don’t need a trust because I don’t have millions”. This misconception is common for those not familiar with what happens to your property and interest after your death.
Unfortunately, for many, this thought process stops many people from asking the important question: why do I want a will? When a person dies, those assets held in their names (bank accounts, real estate, vehicles, investments, etc...) need a legal mechanism to pass to another person. Meaning, unless you have a right of survivorship designation (having your spouse as a joint tenant on your deed or having a pay on death beneficiary), the law requires your estate to go through a legal mechanism, called probate. If you own property in multiple states, your will has to go through probate in every state! To make matters worse, you have to alert all creditors to which you owe a debt to give them time to file a claim, seeking payment for debts you owe…or at least they allege you owe. The end result, often times, leads to your assets being congested in the probate system- being widdled away by legal fees, creditor payments, personal representative fees and other expenses.
Luckily, there is another option for those who would like to put all of their assets into one place. In the right situation, a revocable trust may be your best bet. Here are some reasons why:
1. A well drafted and fully funded revocable trust avoids probate at death: When your assets are held in a trust, there is no need to file a probate estate because legally you own nothing when you die, your trust does. As a result, the assets in your trust do not have to wait for months, sometime years, to be dispersed (assuming your trust document has language to allow immediate dispersal).
2. A properly prepared trust avoids court interference if you become unable to handle your affairs: Most people would rather have a close family member or trusted friend of their choice handle their personal affairs if they become unable to. Without it your family is left to file a guardianship action with the courts, and it will be left up to the discretion of the judge. It's important to remember a will does nothing for you if you become incapacitated as it is only effective once you die.
3. A living trust puts all of your assets under one set of instructions and can help insure equal distribution of assets to your heir: It is not uncommon for clients to tell me they want their estate to be divided evenly among their heirs, and then proceed to tell me they want their land to go to Child 1 and their bank account to go to Child 2. The problem with this is you don’t know what you will own when you die. For example, if you have a last illness that requires you to expend all of your funds in your bank account, now you have essentially disinherited Child 2 without even realizing it. A trust ensures that your heirs can receive equal inheritance. A trust also makes it easier for your successor trustees to make sure that your assets go where you wanted them to. (Exceptions may include IRA’s and other tax-deferred plans).
4. A properly prepared and funded living trust is more private than a will and is more difficult to contest. Due to the public nature of a probate court, family fights and want-to-be-heirs are invited to tie up your assets by objecting to certain actions in the administration for your estate, as well as cost your heirs money by having to pay claims. There is also a statutory avenue for people to file a will contest against your will. Although Trusts can also be challenged, it is much less likely due to the private nature of the document.
To be clear, estate planning is not a one size fits all approach. You should consult a licensed attorney who can highlight the pros and cons of Trust Agreements verses a traditional will.