We all know the purpose behind wills: to have our assets distributed according to our wishes once we die. But what if we become incapacitated instead? A Will is useless.
Living Revocable Trust (LRT) vs. Will – Life vs. Death
If you survive for a long time without being able to disburse assets, your family could have some serious financial problems. By creating a living trust, you appoint yourself as the grantor or trustee while you are alive and designate a successor to act as trustee if you become incapacitated.
Avoiding probate court
A will does not avoid probate court, where public proceedings can drag out for 6 months to 2 years. Your assets can be “frozen” while a judge determines that all creditors have been paid and that the will is followed according to your wishes.
Witnesses to your will must appear in court to testify about your final wishes. Avoid this potential problem by having the witnesses sign in front of a notary.
RLT vs. WILL – Timely, Versatile Document – private vs. public – Pay now or later
A revocable living trust (RLT, inter-vivos trust) will allow you to avoid public Probate proceedings and still distribute assets, according to your wishes, while you are alive and the process continues through your successor trustee once you die. That can be done in two to four weeks.
A simple will costs around $250 to $350, but disbursing your estate through probate can cost thousands later. An RLT costs around $2000. With an RLT, you are paying the (uninflated) costs up front.
To create an RLT, you must put all of your assets – home, car, bank accounts – into the name of the trust. For example, instead of the home being deeded to Mr. and Mrs. A. B. Smith, it will be listed as belonging to “The A.B. Smith Family Trust.”
This takes time and requires planning for ongoing updates. (Some do not continue to charge ongoing, updating fees; it’s part of the original agreement.)
There are no tax gains to a trust because you can change “ownership” at any time. (You can look into Irrevocable Living Trusts if you have a lot of assets and this is of concern to you.)
Some items avoid Probate anyway because they already have an intended beneficiary: life insurance policies, retirement benefits, jointly owner property, and annuity contracts.
A Will is still recommended…
Because you might gain property and assets after you have created the trust, you should have a will. Later-acquired assets not listed in the trust aren’t covered and will end up going through Probate anyway. You can also list guardianship in a will.
If your state allows you to write a “non testamentary letter” to your executor, you can add dated, written amendments to your will and give them to your executor right up till the time of your death.
Trusts – Privacy Assured
Sometimes wills are challenged in court and the process of distribution can be dragged on indefinitely. You can include a clause to void distribution to a disgruntled heir if (s)he tries to challenge the process in court. In a trust, disgruntled heirs have no public recourse to argue over the terms.
You can create a revocable living trust to avoid the public, and sometimes prolonged, process of probate. If you have a couple of irresponsible beneficiaries, or minor children, a trust can control who gets what and when. If you’ve named guardians for your children, their spending can be controlled with a trust.
Keep your last will and testament up-to-date with signed amendments for those later acquisitions that don’t make it into the trust.
Although necessary expenses for creating these important documents seem to be unavoidable, many senior programs offer reduced fees for legal services.