The unexpected can strike without warning, making it wise to have your affairs in order sooner rather than later. A pivotal decision in estate planning involves choosing between placing your assets in a revocable trust or simply bequeathing them through a will.
“When you control assets, establishing a clear way to designate who manages them and who inherits what is crucial,” explains Stephen Taddie, director at Focus Partners Wealth in Phoenix. Below, we unpack key considerations and why relying solely on a will might fall short.
Snapshot of Key Points
- Will: A legal document specifying how assets are distributed after death.
- Revocable Trust: Also known as a living trust, it’s a legal vehicle that safeguards your assets.
- Each instrument carries distinct benefits and drawbacks. Wills tend to be quicker and less costly to establish, yet revocable trusts offer enhanced protections.
Main Distinctions Between Revocable Living Trusts and Wills
Wills have long held popularity as estate planning tools due to their relative affordability and straightforward setup. On the flip side, revocable trusts often demand a heftier initial investment but may prove more economical over time.
A fundamental difference lies in probate: wills must undergo this court-supervised validation, often stretching over a year or two, even if beneficiaries are pre-named. Revocable trusts bypass probate entirely, streamlining the process for heirs.
Privacy also sets them apart. Wills enter the public domain upon probate, making details about your estate accessible to anyone curious. Revocable trusts, conversely, stay under wraps; their contents remain confidential.
Contingencies involving incapacitation also diverge. Should illness impair your decision-making, a trustee under a revocable trust can handle your assets seamlessly. Wills do not confer such authority unless accompanied by medical advance directives and durable powers of attorney.
| Effective Date | Upon death | Upon creation |
| Probate Required? | Yes | No |
| Privacy | Public record | Private |
| Cost Considerations | Lower initial cost, but potentially higher probate-related expenses | Higher startup cost, but often less costly over time |
| Control | Limited—executor follows probate court directives after death | More adaptable—managed by trustee during lifetime and after |
| Management During Incapacity | Separate legal documents needed | Built-in authority for trustee |
| Guardianship | Possible to appoint guardians for minors | Guardianship cannot be designated here |
Defining a Will
Michael T. Baker, Boston-based attorney at Baker Law Group, summarizes, “A will specifies who inherits property held in your sole name without designated beneficiaries once you pass.” Without it, courts may distribute property to relatives according to state law, irrespective of your personal intentions.
Jointly held assets, such as those shared with a spouse, typically transfer automatically to the surviving holder. Accounts with named beneficiaries also generally bypass probate.
Advantages of a Will
- Economical and uncomplicated to draft
- Enables appointment of guardians for minor children
- Allows detailed distribution instructions
- Executor named to administer estate
Drawbacks of a Will
- Must pass through probate court
- No authority during beneficiary’s incapacitation
- Becomes public record
- May not govern all assets
Understanding a Revocable Trust
Increasingly favored over wills for a smoother, less expensive probate alternative, revocable (or living) trusts “combine the flexibility of a will with the power of a trust,” notes Baker. They can be amended or revoked anytime while you remain alive.
Unlike irrevocable trusts, which require surrendering control over assets, revocable trusts keep you actively in charge.
“Typically, you wear multiple hats as trust creator, trustee, and beneficiary during your lifetime,” details Shann Chaudhry, San Antonio attorney. “Upon death, your successor trustee and named beneficiaries assume control.”
Benefits of a Revocable Trust
- Bypasses probate
- Maintains confidentiality
- Trustee manages assets if incapacitated
- Modifiable and cancellable as circumstances evolve
Limitations to Consider
- Higher upfront cost
- No shield from creditors
- Cannot appoint guardians for minors
Additional Insight from Wikipedia:
According to available data, approximately 30% of American adults have a will or living trust in place, highlighting a significant gap in estate planning preparedness. Probate processes can take on average 9-12 months, sometimes extending beyond 2 years depending on complexity and jurisdiction.
Deciding Between a Revocable Trust and a Will: Key Factors
1. Speed and Expense: Wills Win the Fast Lane
When urgency is paramount, wills have the edge due to quicker, less costly setup.
Morris Armstrong, of Morris Armstrong EA in Connecticut, emphasizes that funding a trust requires retitling assets, a step not required for wills. “If assets aren’t retitled properly, probate is unavoidable despite the trust’s existence, resulting in wasted time and sunk costs,” warns Alvina Lo, chief wealth strategist at Wilmington Trust.
On the flip side, some states still require wills to be signed and witnessed in person, although video witnessing gained ground after Covid-19.
2. Incapacity Planning: Trusts Offer a Safety Net
Trusts come with a crucial advantage: the ability for a successor trustee to step in during incapacitation. This is typically paired with complementary documents like medical advance directives and durable powers of attorney.
“These empower trusted individuals to make medical and financial decisions on your behalf,” states Tracy Craig, partner at Seder and Chandler, Boston. “Young adults should seriously consider these protections earlier than they often do.”
Leslie Tayne, New York attorney, adds, “Unlike wills, revocable trusts enable trustees to manage your estate should you become disabled.”
However, Taddie points out a wrinkle: “Some custodians may not honor a durable power of attorney related to trusts and insist on a co-trustee or successor trustee. This can create tension as the trustor grapples with loss of control and successors hesitate to declare loved ones incapacitated.”
3. Cost Misconceptions: Trusts Might Be More Accessible Than You Think
While often perceived as pricey, trusts can make sense even at relatively modest asset levels.
“If you own a home or exceed $150,000 in assets, a trust-based plan often offers better protection,” says money-saving expert Andrea Woroch.
Moreover, digital platforms now allow setting up wills or trusts for mere hundreds of dollars, sometimes under $400. For those on shoestring budgets, free legal services are available for creating binding trusts or wills online.
Nonetheless, complex cases still require professional legal guidance to navigate potential pitfalls.
4. Backlogged Courts Mean Trusts May Provide Practical Advantage
Probate delays are common, sometimes dragging out significantly due to court backlogs. A trust’s ability to circumvent probate can avoid prolonged uncertainty.
“While waiting on the courts, who manages your finances—paying mortgage, funeral expenses?” asks Lo, underscoring the practical benefits of trusts.
Frequently Asked Questions
Can You Use Both a Will and a Living Trust?
Absolutely. Combining a revocable living trust with a will often creates the most comprehensive plan. The trust handles asset management and distribution while avoiding probate; the will captures any property not included in the trust and allows you to appoint guardians.
What Is a Living Will?
A living will is a healthcare directive specifying your medical treatment preferences if you become unable to express them yourself. Unlike a traditional will, which activates after death, a living will guides decisions during your lifetime.
Which Assets Are Typically Excluded from a Revocable Trust?
Usually, retirement accounts, vehicles, and life insurance policies aren’t placed inside revocable trusts due to tax or legal complications. Instead, naming the trust as a beneficiary of these accounts often avoids adverse consequences.
Planning your estate isn’t just paperwork—it’s peace of mind amid life’s unpredictability.
“Remember, mental capacity is required to execute many legal documents, so procrastination can cause trouble,” reminds Taddie.
Given the intricacies of estate planning, consulting a qualified attorney—except for the simplest cases—is vital. Thoughtful preparation ensures your estate passes to your heirs exactly as you envision.
Article updated with contributions from Bankrate.
