Will vs. Revocable Living Trust: What Do I Need & Why?

A Will is the most commonly known estate planning device. But most people need more planning than they get with a Will.

Following are my recommendations as to what you should consider when putting together a comprehensive Estate Plan, including key differences between a Will and a Revocable Living Trust, as well as why it is generally a good idea to avoid probate.

What’s in a Comprehensive Estate Plan?

One of the most important things that you can do in your life to preserve and to pass on your wealth to your loved ones is to create an effective estate plan.   A comprehensive plan ensures that your desires are followed and your estate is protected if you become incapacitated or pass away.

A comprehensive estate plan typically includes the following documents:

• Revocable Living Trust or “Family Trust”;
• Pour-Over Will (vital for parents of minor children as this nominates Guardians for your kids);
• Certificate of Trust;
• Durable Power of Attorney (for financial management);
• Trust Funding Instructions (to ensure your assets are properly transferred into your Trust and proper beneficiary designations are made/updated; this may also include deeds to transfer real estate into your Trust);
• Memorial Instructions;
• Detailed Trust Schedule of Assets;
• Personal Property Memorandum; and
• Advance Health Care Directive (customized specifically in accordance to your wishes)

What is a Revocable Living Trust?

A revocable living trust is the foundation to a comprehensive estate plan. A properly formed and funded living trust can avoid the probate process altogether and streamline the administration of your estate while preserving its value.   Like a Will, a revocable living trust will spell out “who gets what” and how.  Unlike a Will, this usually occurs without any court involvement otherwise known as probate.

Will

In contrast to a revocable living trust, a Will is a one-way ticket to probate court.  A Will is not a separate legal entity like a revocable living trust, but merely an instrument that tells the Court who to give your estate to after passing.  A Will only applies after your death – a Will doesn’t address any lifetime issues, such as planning for your incapacity or mental disability.

In your Will, you can appoint whomever you wish to act as Executor of your estate after you pass away.  However it is usually the estate’s probate lawyer who controls the actual distribution of your property, which can be both expensive & frustrating.

A Will is a necessary document in that it you can nominate Guardians for minor children.

After you pass away, your Will must be filed with the local superior court and is subject to the entire probate process in order for its provisions to be carried out.  This can cost your estate a significant amount of money, time, and effort for your family.

What is Probate? Why do I want to avoid it?

The short answer: Probate can be lengthy & time-consuming, bureaucratic, frustrating & expensive.

The long answer:  The Probate process is basically the process of gathering, accounting, & distributing a deceased person’s property.  Probate is subject to state statutory rules & proscribed timelines enabling all interested parties to come and make their claims against the estate (creditors).  On average, a probate takes about 10-12 months.

The Court decides how the proceeds of the estate will be distributed.    A Will does not avoid probate!  If the deceased person had a Will, the Court typically follows the Will’s provisions regarding estate distribution.  If there was no Will, the Court then looks California law for the distribution of your estate (to your “heirs at law”).  The state intestate laws dictate “who gets what” —meaning that none of your desires/wishes are considered.

With a Will, your beneficiaries end up with less money (due to higher costs involved in probate), at a later date, with much more hassle & red-tape than a properly funded revocable living trust based estate plan.

How Does the Revocable Living Trust Avoid Probate?

A revocable living trust prevents your estate from having to be submitted to the probate process primarily because the trust is a separate legal entity created during your life to hold your estate assets.  However, you still control everything, unless you become incapacitated or pass away.

To function properly and avoid probate, a revocable living trust must be properly “funded” – you have to transfer title to your property to your trust.  Your trust owns the assets and there is no estate/property that is subject to probate.

How Does a Revocable Living Trust Work?

When you create your revocable living trust, it specifies:

1)        Who you designated as Trustee (usually yourself and if you’re married, you and your spouse;

2)        Who you designated as Successor Trustees, who will take over if you’re incapacitated or die;

3)        Who will receive your estate, your Beneficiary(ies) and how the beneficiaries receive their inheritance (outright, %’s at certain ages, etc.)

4)       Trusts can do a lot more, such as minimize gift & estate taxes, protect beneficiaries with special needs, etc.

Trust Administration: While you’re Alive (& Not Incapacitated)

Typically you serve as sole Trustee of your own trust unless you’re married and then you and your spouse serve as co-Trustees of the trust. You have complete control & custody over all trust assets. You can use all assets as you wish, allowing you to retain full & unconstrained control.  As “Settlor” (creator) of the trust, you can typically amend/revoke/restate the trust partially or in its entirety, allowing for a maximum degree of flexibility.

Trust Administration: Upon Incapacity

The trust spells out its legal definition of incapacity & the steps involved in appointing someone to take the reins (the Successor Trustee/s).  As you’re still the Lifetime Beneficiary, trust assets are to be used solely for your own benefit.

Trust Administration: After Death

Upon your death, the designated Successor Trustee becomes the current trustee of the trust.  The Trustee is bound by the terms of the Trust & has a legal duty to follow its terms.  The Trustee is usually responsible for gathering the trust’s assets (with the option to liquidate as needed) and then distributing the assets to the trust’s beneficiaries you named.  The Successor Trustee then closes out the Trust after the final distribution is made.

When an experienced estate planning attorney, like Norbert U. Frost, help you create your plan, this happens privately, without court involvement – saving the estate a good deal of money (attorney’s fees, court costs/fees, publication fee, appraisers fees, etc.) and a tremendous amount of time & hassle for your family.