Advantages and Disadvantages of Distributing Your Estate Through a Will or a Living Trust


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By Carlon B. Walker

Have you planned for what will happen to your estate when you die? If not, you might want to consider the benefits and drawbacks of distributing your estate through a Will or a Living Trust. Understanding the difference between a Living Trust and a Will and comparing the advantages and disadvantages of both options can help you make an informed decision on which option works best for you. You can obtain additional information about how to establish your estate plan with either a Living Trust or a Will at your local library. Information professionals are available at your library to help you find information about Wills and Living Trusts and how to identify the best and most authoritative resources in print and online.

The main purpose of a Will is to identify the beneficiaries to whom you wish to leave your property upon your death. The Will also designates the personal representative or executor of your estate who will be responsibility for the collection of your assets, the distribution of your assets in accordance with your Will, and the discharge of your debts and liabilities. An executed Will becomes operative upon your death. Therefore during your lifetime, you can make a Will, revoke it and/or amend it as frequently as you choose. If you execute a Will, your executor must participate in the probate process of your Will. Probate is the legal process in which your Will is filed with a local county office generally known as the Register of Wills. During this process, the Will is authenticated and the executor is granted authority to act on behalf of your estate as expressed in your Will. Until the probate process is completed, the executor of the Will can not distribute your property to your family members or others beneficiaries named under your Will.

A Living Trust is a written agreement in which your property is transferred to the Living Trust. The trustee of a Living Trust can be a person, a bank or a trust company. The Living Trust holds the transferred property for the benefit of the beneficiaries whom you designate under the trust agreement. Just like a Will, a Living Trust can be revoked or amended by you at any time prior to your death. However, unlike a Will, a Living Trust becomes operative upon your creation of it and your transfer of property into it while you are still living. A Living Trust generally provides for the payment to you of income and sometimes principal from the assets held in the Living Trust. Upon your death, the Living Trust provides how the trust assets will be distributed among the beneficiaries. In most cases, you will serve as a trustee of the Living Trust. Of course, a successor trustee is designated in the Living Trust in the event you are unable to serve or upon your death.

The same tax planning devices are available whether you use a Will or a Living Trust.  Therefore, the choice between a Living Trust and a Will should not be made on the basis of tax considerations.

 

Advantages of a Will

  1. A Will is the most basic way to plan an estate. With little up-front costs, a Will is very easy to establish. Attorney fees for drafting a Will are generally less than the cost for executing and transferring property to a Living Trust.
  2. A Will offers a lot of flexibility for an individual who has a spouse, minor children or others for whom he or she wants to provide support after his death. This is especially true for parents who need to designate guardianship over minor children.
  3. A Will allows you to plan for personal matters, such as funeral arrangements, how your children should be raised, care for your surviving pets or any other personal matter you might need to address.
  4. Same-sex partners and unmarried couples can use a Will to grant rights and provide financial support to their domestic partners where state law generally fails to provide.
  5. The probate process for a Will extends protection against fraud, embezzlement and mismanagement of your estate assets.

Advantages of a Living Trust

  1. You avoid probate.  With a Living Trust in place, your family does not have to go to court to prove the validity of your wishes and intentions, or appoint and pay a personal representative to administer your estate.
  2. Privacy is assured.  Since the Living Trust does not have to be publicly filed with any government agency including the Register of Wills, the public can not find out how your estate is being distributed. Only the beneficiaries of a Living Trust know how much income the Living Trust generates, and only the trustee knows the full extent of the Living Trust's assets.
  3. You remain in control of your assets.  A Living Trust gives you full use of your assets while you are alive and then passes this authority onto a successor trustee after your death. The successor trustee then distributes the Living Trust assets to the named beneficiaries.
  4. Avoidance of conservatorship.  The Living Trust can authorize the successor trustee to manage your property if you are incapacitated or become incompetent.
  5. Out-of-state property is protected.  A Living Trust may be used to administer out-of-state property by appointing an out-of-state trustee or setting up another Living Trust in the state that your property is located.

Disadvantages of a Will

  1. Probate process may be long. The probate process for a Will can take years. If the probate process takes a long time, your family members or other beneficiaries may suffer financial and emotional distress since they can not receive their inheritances until the probate is completed. In addition, if a delay in probate results, your executor will not be able to gain control over your assets to monitor and preserve the value of such assets until the Register of Wills confirms his or her appointment. It should be noted, however, that in some states the probate process is completed very quickly and the difficulties associated with probate are not regularly encountered.
  2. Additional probate for real property located in another state. If you own real estate outside the state in which you reside at the time of your death, a supplemental probate process may be needed in the state in which the real estate is located. This additional probate may cause a delay in the distribution of this real estate and add additional expense to the overall probate process.
  3. Subject to public view. The Will becomes public record once it is filed with the Register of Wills. This allows the public to access and review the Will during and after probate. Therefore, anyone can see what you left to your named beneficiaries simply by looking up your Will at the local probate court.
  4. Challenges against validity of the Will or your capacity. Probate opens the possibility for challenges against the validity of the Will or your mental capacity, which could result in overturning your Will. If your Will is overturned, your entire estate will be subject to the intestate laws of the state in which you live at the time of your death or where your real estate is located.
  5. Can not address management of your assets if you are incapacitated. Since a Will only becomes operative upon your death, a Will can not address the management of your assets if you become incapacitated. In this case, you would need to appoint an agent in a Durable Power of Attorney for Financial Matters to manage your assets and financial matters should you become incapacitated or incompetent.

Disadvantages of a Living Trust

  1. Limited in its application. A Living Trust is limited in its application to the management and passage of your assets. A Living Trust can not arrange care for your minor children, grant rights to your unmarried domestic partner, plan your funeral or make other arrangements. Without a will, a Living trust leaves the majority of your personal matters for intestacy probate.
  2. Creditors have access to assets. A Living Trust may not shield you from creditors. Your debts may be applied to the Trust.
  3. Subject to community property, dower and curtesy state laws. Even though Living Trusts are recognized in all 50 states, they may be subject to different rules in states that are community property, dower or curtesy states in which a spouse is entitled to a specified part of the estate. Several states have laws requiring grantors of Trusts to leave a certain amount of money to their spouses. Such laws overrule or override any contrary conditions set forth in a Living Trust.
  4. Costly to establish. A Living Trust cost substantially more to establish than a Will because you must fund the Trust at the time you form it. Stocks must be re-registered, trust accounts must be established, and title to promissory notes, real estate, partnership interests, mineral interests and all other assets must be transferred into the name of the Living Trust. Assets that are not transferred to your Living Trust at the time of your death will be subject to the probate process.
  5. Not monitored for fraud or abuse. The assets held by the Living Trust are not monitored for potential fraud or abuse by the trustees who may misappropriate the estate's assets since the Living Trust is not subject to probate.
  6. There are many good reasons for you to consider establishing a Living Trust or a Will. Therefore, you should weigh the various advantages and disadvantages of a Living Trust and a Will in the context of your own personal circumstances and then decide whether the use of a Living Trust or a Will is a sensible choice. Once again, you should visit your local library to obtain additional information that can assist you in determining which option is best for your personal needs.

Recommended Resources:

Your Will & Estate Plan: How to Protect Your Estate and Your Loved Ones
By Harvey J. Platt
This book provides information on how to establish an efficient Will and estate plan, and dozens of real-life examples. This book also explains how to set up a Will, select beneficiaries, and establish trusts.

The Mom's Guide to Wills & Estate Planning
By Liza Hanks
This book provides advice on writing a Will and estate planning, with suggestions on how to choose a guardian for children, when to consider establishing a Living Trust, and related topics.

AARP Crash Course in Estate Planning: The Essential Guide to Wills, Trusts, and Your Personal Legacy
By Michael T. Palermo
This book provides comparisons of Wills and simple Living Trusts, advice on guardianship and advance medical directives, explanations of the role and powers of a trustee, and help in planning for children with disabilities.

Plan Your Estate
By Denis Clifford
This book provides information on estate planning that covers property ownership laws, beneficiaries, probate avoidance, Living Trusts, and Wills.

Photo credit: steakpinball

 

Carlon B. Walker is an attorney licensed to practice law in Michigan and Illinois. In his private practice, located in Chicago, he provides legal advice and counsel with respect to tax, employee benefits, and estate planning.The information contained in this article, however, is for informational purposes only and should not be construed as legal advice.

 

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