One of the most common questions in estate planning is whether you need a Will or a Trust … or both?
First, it is helpful to understand what estate planning is. It is the process by which you establish a plan for how you want your assets (something of value currently owned by you) managed should you become incapacitated or pass away. Often, this “plan” includes BOTH a Will and Trust. But why?
A Will is a testamentary document, that is, a document that pertains to something happening after you die. Specifically, a Will states how you want assets that are titled in your own name distributed upon your death. When you pass away, your bank accounts, properties, etc., do not magically transfer to a living person’s name. Instead, a decedent’s assets must first be submitted to a probate court, marshalled by a personal representative, used to pay off the decedent’s debts, then finally transferred to living people (a decedent’s heirs, or if the decedent has a Will, the decedent’s beneficiaries). A Will does NOT avoid the time-consuming and costly probate process.
By contrast, a Revocable Trust is often created to specify how your assets are managed while you are alive AND how you want your assets managed when you die (i.e., not just testamentary). It is revocable because the terms of the Trust can be changed during the creator’s (i.e., Grantor’s) lifetime. Assets are “in the Trust” and subject to the terms of the Trust if they are titled in the Trust. For example, if a property is titled in Jane Doe’s name, the deed will show “Jane Doe” and be subject to the distribution in Jane Doe’s Will upon her death. If Jane Doe’s property is titled in the Trust, then the deed will show, “Jane Doe, Trustee of the Jane Doe Trust” and be subject to the Jane Doe Trust while Jane Doe is alive and upon her death. Usually, a Revocable Trust will say that the Grantor can use the Trust without restrictions during his or her lifetime. It will also specify who the Grantor trusts to manage assets in the Trust (i.e., a successor Trustee) in the event of his or her incapacity or death. The Trust will further state the people the Grantor wants the remaining Trust assets to go to after he or she dies (i.e., your beneficiaries). If the Grantor has young kids, the Trust will also likely name a successor Trustee to manage the Trust assets for the benefit of those children.
Trusts are more expensive to establish up front, but a properly funded Trust can save a tremendous amount by avoiding probate when you pass.
So, back to the question: Will or Trust? Generally, if you have real property or minor children, you should have a Trust-based estate plan. If you do not have these, you may be able to avoid probate with a Will-based estate plan. If you have any questions or would like to discuss what is right for you, contact us!