No-Probate.com :: Wills vs. Trusts

Wills vs. Revocable
Living Trusts

Summary of Advantages to Using a Will
Summary of Advantages to Using a Revocable Living Trust
Issues Having No Obvious Advantage between Using a Will vs. a Revocable Living Trust
Obtaining "The Best of Both Worlds"
What is Probate?

Issue	Will	Revocable Living Trust
During Life:
Cost to implement	Modest: only to prepare a Will	Greater: to prepare both a Will and a Trust; to transfer all assets to Trust; and to educate Trustor(s) re Trust management
Cost to administer	Nothing to administer until death	Usually little more than if property held individually
Lifetime asset management	Will effective only at death (although lifetime asset management should be possible through a Durable Power of Attorney for Assets)	Trust can include asset management upon disability and avoidance of appointment of guardian of estate
Property Character Retention during Marriage	Relatively easy to commingle spouses' property, both among spouses and between their respective separate and community property	Easy to maintain each spouses' separate property by keeping it in separate trusts
Ability to change the terms	Easy, by executing a new Will or a Codicil	Easy, by executing an Amendment to Trust
Income tax advantages	Comparable	All income tax attributes flow through the Trust and are reported by Trustor(s), as if the Trust didn't exist
Time bomb	None	Property acquired after Trust created and never transferred to Trust, requiring a probate proceeding just for that asset

At Death:
Necessity of probate proceeding	Requires probate proceeding for Will to take effect and property to pass according to its terms	Takes effect at death without necessity of probate proceeding for all property held by trust
Real property in another state	Requires "ancillary" probate proceeding in that state to clear title	No ancillary probate proceeding required so long as all property held by Trust
Expenses at death	Can be large if probate necessary, especially in state (eg, California) providing substantial professional commissions and fees	Usually substantially less, due to avoidance of probate & possible excessive professional commissions and fees
Privacy	Probate proceeding, including contents of Will, are public	Trust administration is private
Disgruntled Heirs & Beneficiaries' Potential for Contest	Will's terms are public, and a Will contest is relatively easy and inexpensive to file following initiation of probate proceeding, although it must be filed within 4 months of admission of the Will	Beneficiaries are not entitled to disclosure of Trust's terms except as to their individual interest, and Trust contest would have to be initiated by them at their expense, but no comparable Statute of Limitations
Income tax advantages	Probate estate is a separate taxpayer for income tax purposes, so some income tax advantages may be possible	While living trust following death also qualifies as a separate taxpayer, it is more difficult to justify keeping the post-death administration of a Trust open in order to obtain any income tax advantages
Death tax advantages	Comparable	Comparable
Debtor/creditor advantages	Comparable due to ability to publish Notice to Creditors as regards either probate or non-probate assets	Comparable
Delays following death	Some time necessary to initiate and settle probate proceeding	No interaction with Court necessary, so delays and deadlines due to Court aren't relevant
Interruptions resulting from death	Interruptions possible due to Court intervention (eg, obtaining ongoing funds, running a business)	No interaction with Court necessary, so interruptions due to Court aren't relevant
"Nonroutine transactions"	Personal representatives are not subject to "nonroutine transaction" requirements	Trustees are so subject, requiring them to notify Beneficiaries before undertaking any "nonroutine transactions"
Causes of action by or against a Decedent	Can be brought or defended only by a Personal Representative	Decedent's Trustee lacks comparable authority
Court Accountings	If Will itself establishes trusts after death ("testamentary" trusts), then their Trustee may be required to account to the Court annually for the trusts	No Court accounting necessary

Summary of Advantages to Using a Will:

During Life:
1. Easier and cheaper to prepare.
2. Avoids the necessity of transferring all your existing and after-acquired property to a Trust.
3. More convenient:
  - Has no effect until death;
  - Avoids Trust management problems; and
  - You can continue to hold and manage your property just like you always have.
At Death:
1. A neutral, third-party (a Judge) is available who can supervise the process, ensure that it is proceeding according to law, and resolve any disputes (eg, among your Beneficiaries, between them and the Personal Representative, or regarding title to property or legitimacy of debt).
2. An objective process is available that extinguishes claims against you and your estate that is quick and fair to debtors, creditors, and your Beneficiaries.
3. Only a Personal Representative can bring or defend a lawsuit on your behalf.
4. In Washington, because of its liberal, consumer-oriented probate laws, the probate process can be remarkably simple, quick, efficient, and inexpensive.
5. Avoids Trust "Time Bomb" problem, the possibility that a probate will be needed despite having a Trust.

Summary of Advantages to Using a Revocable Living Trust:

During Life:
1. Can provide for asset management upon disability, possibly avoiding the appointment of a Guardian for your Estate (although with a Will, that appointment might not be needed through the use of a Durable Power of Attorney for Assets).
2. Easier to keep spouses' property separate and to maintain its non-community character.
At Death:
1. Avoids the necessity of a probate proceeding in your home state so long as none of your property remains titled in your name.
2. Avoids the necessity of a probate proceeding in any other state in which you own real property so long as that property is titled in the name of your Trust.
3. Quicker and less expensive, especially if you are a resident of a state (eg, California) that provides for:
  1. A more formal probate process,
  2. "Statutory" probate commissions and fees based on the value of the assets in your probate estate,
  3. A Court filing fee also based on the value of the assets in your probate estate.
4. Your estate plan and the administration of your estate are not made public.
5. Your Beneficiaries are not entitled to disclosure of your estate plans except as it pertains expressly to them.
6. Reduced likelihood for a contest over your estate plan, due to increased privacy and expense of a contest.

Issues Having No Obvious Advantage between Using a Will vs. a Revocable Living Trust:

Income or Estate Tax Savings

Obtaining "The Best of Both Worlds"

The situation is not really as "black and white" as presented. In practice, anyone using a Revocable Living Trust as the vehicle for his/her estate planning will likely (and should) have a Will as well, among other things, to provide for situations that only a Will may provide, such as:

Appointment of a list of Personal Representatives in priority order, in case a probate proceeding might be necessary or advantageous for some reason even upon the use of a Revocable Living Trust as one's primary estate planning vehicle.
Appointment of a list of Guardians in priority order, perhaps even separate lists for Guardians of the Person and Guardians of the Estate, for any minor children.
Appointment of property subject to a Testamentary Power of Appointment.
Gifts of tangible personal property by a separate writing, not subject to their being made according to Will formalities.

The Will used with a Revocable Living Trust is known as "Pour-Over" Will. A Pour-Over Will will:

Contain any of relevant provisions above and
Provide that any property held at death by the Decedent/Trustor (ie, property that escaped being transferred into Decedent's Living Trust during life) to now be transferred (ie, "poured-over") into Decedent's Living Trust at death (technically, be transferred from Decedent's Personal Representative to Decedent's Trustee).

Practically speaking, you now see that in creating and implementing one's estate plans, the issue is:

Not so much "Should I have a Will or a Living Trust?"
As "Given that I should have a Will under any circumstance, should I also have a Living Trust as well?"

Bottom-line:

Query: What is the best vehicle to use to support one's estate plans? A Will? A Revocable Living Trust? Or???

There is no "right answer."

One size does not "fit all."

It all depends on:

Who you are,

Where you live,

What you have,

What you want,

Etc., Etc., Etc.

The Choice Is Yours

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