Using a Revocable Living Trust vs a Will-Based Estate Plan

A business person reviewing papers with a customer
01 Feb 2021

Many times, the question arises, “should I use a trust in my estate plan”?  Without further digging into what is really meant by a trust, it is hard to answer that question. The focus of this article is using a revocable living trust for your estate plan rather than a traditional will-based estate plan.

A will is a document that provides instructions as to the disposition of assets for someone who has died.  A revocable living trust can also do the same thing, but the revocable living trust tends to be a bit more complex for a variety of reasons. First, a trust is more complex due to the fact that the trust document must detail all the specifics of an estate plan that are simply assumed when a will is used. A trust is a contract between the creator (often referred to as the grantor, trustor or settlor) and the trustee who agrees to hold the assets for the beneficiaries under the terms set forth in the agreement. Revocable living trusts are commonly used by individuals with property in multiple states, as to avoid having to go through the probate process in all states where property is owned. Additionally, revocable living trusts are private documents, whereas a will becomes a public document when filed with the courts at an individual’s death. With revocable living trusts, the grantor retains the right to “revoke” or change the document. This is important as estate plans will often change and evolve over time. In a traditional revocable living trust, the grantor usually retains all rights to manage the trust while living and being deemed competent. Another benefit of utilizing a trust is when the grantor cannot legally manage the trust because of mental disability or death, the appointed successor trustee can step in and manage the assets as needed.

Arguably, as important as the trust document itself, is the process of funding the trust. Funding the trust is the process of transferring assets into the name of this trust. This may involve retitling of accounts, a bill of sale of personal assets as well as deeding real estate to the trust. Funding a trust as the grantor during your lifetime can be much simpler than having someone else transfer your assets upon your death given that you are most familiar with the assets you own. Properly funding the trust during your lifetime will help avoid probate and simplify the process of transitioning assets for the successor trustee.  At the grantors passing, the assets may be distributed directly from the trust to the beneficiaries or there may be additional trusts created to hold assets for a period of time to be managed by the trustee for the benefit of the beneficiaries. Either way, having the revocable living trust properly funded will make the process more efficient for the successor trustee.

Deciding whether to use a revocable living trust or a will for your estate plan depends on your specific goals and situation. Wills are usually easy and cheaper up front but require more effort and expense later. Revocable living trusts are more work and expense up front, but usually less work and expense later. Remember, when dealing with taxable estates, both will- and trust-based estate plans will require the same appraisals and estate tax returns, so there is minimal savings on the expense later.  Determining which route is best for you will take some thought. Most importantly, make sure your wishes are captured in writing whether it be via a will or a revocable living trust.

 
Bobbi Sondreal
Written By: Bobbi Sondreal
Succession and Retirement Planning Consultant