The Last Will and Testament plays an essential role in estate planning and without question everybody should have one. Quite simply, a will is a legal document that outlines how your property should be distributed at the time of death as well as your choice of guardians in the case of surviving minor children. Regardless of how big or small your estate may be, without a will, there are no assurances that your property and other assets will be distributed according to your wishes. However, for those with substantial assets, more complicated situations or concerns regarding diminished capacity in later years, a revocable trust also should be considered in addition to a will.
A revocable trust, frequently referred to as a “living trust,” is an inter vivos trust, which simply means it is created during one’s lifetime, as contrasted to a “testamentary trust” which is created upon death through a will. The revocable trust is a legal document and generally is drafted concurrently with one’s will and ancillary estate documents. A revocable trust, similar to a will, details dispositive provisions upon death, successor and co-trustees, and other provisions. Upon the grantor’s passing the revocable trust functions much like a will.
A revocable trust is an extremely flexible vehicle with little or no restrictions during your lifetime. Generally you name yourself as the trustee and can maintain complete control over the trust’s assets. You can move assets into or out of the trust, simply by retitling them. Such asset movement has no income or estate tax consequences, nor is it a problem to, say, distribute income or assets from the trust to fund your current lifestyle.
A living trust offers a number of advantages over having one’s entire estate flow through probate, which is the legal process by which a will is submitted to the courts to affirm its validity of the will as well as to oversee the distribution of the decedent’s assets. For most, the primary advantage of having the majority of one’s assets avoid probate is the ease of asset transfer and the avoidance of costs. The delays and cost for probate varies by state, and both can be quite considerable.
Another advantage of having most of one’s assets avoid probate is privacy; through probate your will becomes a public document so the curious (friends, family, the press) can obtain details of your estate that you may have wished remained confidential. It is possible that such availability of one’s financial affairs may facilitate a disgruntled family member’s opportunity to challenge the will’s provisions.
Even with a revocable trust a will still is needed. Often referred to as a “pour over will,” this document controls the decedent’s assets that have not been titled to the revocable trust, intentionally or by oversight. These assets may include personal property such as cars and furniture, or checking accounts, and generally name the revocable trust — which upon death becomes irrevocable — as the beneficiary. Another consideration that often is overlooked with the titling of assets is that when a direct beneficiary is named for say, real estate, an IRA, or an insurance policy, upon death such assets will transfer outside the control of either a will or a revocable trust.
To touch on briefly, another reason for establishing a revocable trust is the possibility of future diminished legal capacity when it may be desirable for another person, say a spouse of child, to assist with one’s financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets, which also can afford financial protection. The topic of financial protection, diminished capacity, conservatorship, etc. is an extremely important topic unto itself.
You should consult with an experienced financial advisor and/or estate attorney who can outline suitable available options to safeguard your estate and provide peace of mind that your heirs will receive what you intended for them to inherit, with the least possible costs and hassles.