Will vs Living Trust: A Quick and Simple Reference Guide

Which is better for you? A will or a revocable living trust?
Which is better for you? A will or a revocable living trust?

Confused about the differences between a will and a living trust?  If so, you are not alone. While it is always wise to contact an estate planning attorney to help you decide which is right for you, it is also important to understand the basics. Here is a quick and simple reference guide:

What a Revocable Living Trust Can Do – That a Will Cannot

  • Avoid guardianship. A revocable living trust allows you to name your spouse, partner, child, or other trusted person to manage your money and property, that has been properly transferred to the trust, should you become unable to manage your own affairs. A will only becomes effective when you die, so a will is useless in avoiding  guardianship proceedings during your life.
  • Bypass probate. Accounts and property in a revocable living trust do not go through probate to be delivered to their intended recipients. Accounts and property that pass using a will guarantees probate. The probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time consuming.
  • Maintain privacy after death. A will is a public document; a trust is not. Anyone, including nosey neighbors, predators, and the unscrupulous can discover what you owned and who is receiving the items if you have a will. A trust allows you to maintain your loved ones’ privacy after death.
  • Protect you from court challenges. Although court challenges to wills and trusts occur, attacking a trust is generally much harder than attacking a will. If there is a challenge to a will, the probate court will stop all proceedings until the matter is resolved, which can put the will contestant in the very strong position of demanding to be paid to go away. Because there is no probate court involvement is no necessary in the administration of a trust, challenging a trust does not result in everything grinding to a halt. This puts the trust contestant at a disadvantage and removes the leverage the contestant would have had in probate court. For other ways on how to avoid conflict over your estate after you pass away, see https://galligan-law.com/how-to-avoid-family-fighting-in-my-estate/.

What Both a Will & Trust Can Do:

  • Allow revisions to your document. Both a will and revocable living trust can be revised whenever your intentions or circumstances change so long as you have the mental ability to understand the changes you are making. (WARNING: There is such as a thing as irrevocable trusts, which cannot be changed without legal action. Irrevocable trusts are different estate planning tools from a revocable trust, which is what we are talking about here.)
  • Name beneficiaries. Both a will and trust are vehicles which allow you to name who you want to receive your accounts and property. A will simply describes the accounts and property and states who gets what. Only accounts and property in your individual name will be controlled by a will. If an account or piece of property has a beneficiary, pay-on-death, or transfer-on-death designation, this will trump whatever is listed in your will. While a trust acts similarly, you must go one step further and “transfer” the property into the trust or name the trust as beneficiary of your property and financial accounts – commonly referred to as “funding.” This is accomplished by changing the ownership of your accounts and property from your name individually to the name of the trust or by naming the trust as beneficiary of the property or account. Only accounts and property in the name of your trust  or designating your trust as beneficiary will be controlled by the trust’s instructions.
  • Provide asset protection. Both a trust and a will may include protective sub-trusts which can allow your beneficiaries to receive some enjoyment and benefit from the accounts and property in the trust but also keep the accounts and property from being seized by your beneficiaries’ creditors such as divorcing spouses, car accident litigants, bankruptcy trustees, and business failures.

While some of the differences between a will and living trust are subtle; others are not. An estate planning attorney can work with you to help you determine which is better for you, a will or a revocable living trust, so that you end up with an estate plan personalized to your needs.

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Covid 19 and Minor Children – Things to Consider Now

It's important to have a plan in place to take care of your minor children, if you are unable to do so yourself.
It’s important to have a plan in place to take care of your minor children, if you are unable to do so yourself.

Protecting your family is important, especially when you have minor children, and even more so now that we are living through a pandemic. With all of the unknowns of our current situation, you need some certainty. Having an up-to-date estate plan can be the first step toward providing that certainty in an uncertain world.

Many people view estate planning as limited to making arrangements for your death. However, it is equally important to plan for a time when you may still be alive but unable to care for yourself or your minor children.

Addressing the financial needs of you and your minor child

A revocable living trust can be a great solution for managing your and your minor child’s financial needs during incapacity. This planning tool enables you to name yourself as the trustee (the person or institution charged with managing, investing, and handing out the money and property) and allows you to continue exercising control over the money and property you transferred to the trust. The accounts and property are transferred to the trust when you change the legal ownership from you as an individual to you as the trustee of the trust. A trust also allows you to name a co-trustee or an alternate trustee to seamlessly step in, without court involvement, and manage the trust’s money and property for your benefit and the benefit of any other beneficiaries you have named in your trust if you become too ill to do it yourself.

In addition, when using a trust, you can specify when and how the funds should be used for your minor child’s benefit. You can provide instructions for certain expenses to be paid during a period of incapacity to ensure that your minor child is still being provided for in the same way you would provide for your child. Additionally, you can include a plan for how the money will be used upon your death for your child’s benefit. You can also state a time frame for when you think your child would be ready to manage his or her inheritance. Until the child reaches that age, the child’s inheritance will be managed by the trustee you choose. It’s important that you provide your child’s trustee with guidelines on what is important to you in terms of taking care of your child financially. If you leave your child’s inheritance to your child in a trust, the funds will be better protected from any future creditors or a divorcing spouse that your child may have.

An added benefit of utilizing a trust as part of your estate plan is avoiding the time-consuming and often expensive probate process that would otherwise be required. As long as you properly transfer your accounts and property to the trust, or make arrangements for the trust to be named beneficiary of your assets at your death, you will save your loved ones precious time and money during an emotional period.

Caring for your minor child

When planning for minor children, it is also important to consider who will physically care for them if you are unable to. If your minor child’s other legal parent is still alive and able to care for the child, the other parent will continue to provide care or will assume the day-to-day responsibilities of the caregiver. Nevertheless, it is a good idea to plan for what will happen if both of you are unable to care for the minor child, just in case. If you are the only living parent, or if the other legal parent is unfit to care for your child, however, it is crucial that you make the proper arrangements. While most people are familiar with the idea of naming a guardian for a minor child in a last will and testament, this document does not become effective until your death. Therefore, to properly plan for your minor child’s care during your incapacity, you need to consider naming a guardian in a separate writing.

Providing for your minor child’s care and financial security is an important undertaking with many important questions to consider. An estate planning attorney can guide you in making those crucial decisions and can put together a plan that will see that your wishes are carried out.

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When to Update your Estate Plan?

Waiting too long to update an estate plan may lead to bad plans and hurt families. Here are some milestones when you should consider changes.

Many people say that they’ve been meaning to update their estate plan for years but never got around to doing it.   Our office is located near the hospital system, so we get a lot of calls for last minute changes, which is difficult, and sometimes not possible.  Worst of all, we occasionally have to probate out of date wills or administer old trusts that left complicated, unnecessary tax planning, unsuitable executors or trustees, or in some cases, beneficiaries the client meant to change, but never did.

As a way to avoid those scenarios, this blog will talk about when you need to review your estate plan.  This isn’t exhaustive and the best approach is to review the plan every few years, but these major life events often indicate a need to change your plan.  The list as follows comes from Kiplinger’s article entitled “12 Different Times When You Should Update Your Will” and gives us a dozen times you should think about changing your estate plan, as well as a few more of my own:

  1. You’re expecting your first child. The birth or adoption of a first child is typically when many people draft their first estate plan. In Texas the designation of a guardian for the child happens outside a will, but it is still important to provide a trust and trustee for that child in your estate plan as well.
  2. You may divorce. Update your estate plan before you file for divorce, because once you file for divorce, your estate plan and assets may not be able to change until the divorce is finalized. Doing this before you file for divorce ensures that your spouse won’t get all of your money if you die before the divorce is final.
  3. You just divorced. After your divorce, your ex no longer has any rights to your estate (unless it’s part of the terms of the divorce). However, even if you don’t change your estate plan, most states have laws that invalidate any distributive provisions to your ex-spouse in that old will. Nonetheless, update your estate plan as soon as you can, so your new beneficiaries are clearly identified and that any obligations created in the divorce are fulfilled.
  4. Your child gets married. Your current estate plan may speak to issues that applied when your child was a minor, so it may not address your child’s possible divorce. You may be able to ease the lack of a prenuptial agreement by creating a trust for your child in your estate plan to keep those assets out of the marriage.
  5. A beneficiary has issues. Estate plans frequently leave money directly to a beneficiary. However, if that person has an addiction or credit issues, update your estate plan to include a trust that allows a trustee to only distribute funds under specific circumstances.  It is often a good idea to create such a trust anyway in case issues arise in the future.
  6. Your executor or a beneficiary die or are incapacitated. If your estate plan named individuals to manage your estate or receive any remaining funds, but they’re no longer alive or suffering bad health, you should update your entire estate plan (especially powers of attorney).
  7. Your child turns 18. Your current estate plan may designate your spouse or a parent as your executor, trustee or other fiduciary, but years later, these people may be gone or not suitable. Consider naming a younger family member to handle your estate affairs.
  8. A new tax or probate law is enacted. Congress may pass a bill that wrecks your estate plan. Review your plan with an experienced estate planning attorney every few years to see if there have been any new laws relevant to your estate planning.  It is also a good idea to keep reading blogs like this one as we try to address significant changes that might affect you.
  9. You receive a financial windfall or loss. If you finally get a big lottery win or inherit money from a distant relative, update your estate plan so you can address the right tax planning. You also may want to change when and the amount of money you leave to certain individuals or charities.  Similarly, a significant financial loss may mean you can jettison unnecessary tax planning and can simplify your plan.  I find many people change their minds on beneficiaries if they think they will leave less money as well.
  10. You can’t find your original estate plan. This happens more than people realize.  If you cannot find your original Will or other estate planning documents, you should consider executing a new one.  First, if you can’t find it that typically indicates it’s so old it needs updating anyway, but in the case of wills you should probate the original.  It is sometimes possible to probate a copy, but that isn’t a given and you should avoid that scenario.
  11. You purchase property in another country or move overseas. Some countries have treaties with the U.S. that permit reciprocity of wills, but how well that works is another matter.  Transferring property in one country may be delayed, if the will must be probated in the other country first. Ask your estate planning attorney about how to address property in multiple counties.
  12. You relocate to a new state.  Estate plans don’t always need to change when you relocate, but there are nuances to each state’s estate and tax laws, so you should consult with a local attorney after you move.  For example, Texas is a community property state that changes how property is owned going forward for married couples and has no estate tax.  A new resident coming from a common law property state with a state estate tax like New York might benefit from a new plan.
  13. Your feelings change for someone in your estate plan. If there’s animosity between people named in your estate plan, you may want to disinherit someone or change your estate plan. You might ask your estate planning attorney about a No Contest Clause that will disinherit the aggressive family member, if he or she attempts to question your intentions in the estate plan.
  14. You get married (or remarried).  One milestone I like to point out that a surprising number of people don’t consider, is updating your estate plan after you get married or in the event you remarry.  Many people assume that their spouse becomes an automatic beneficiary of their estate plan, which isn’t true, although all states give some rights to the new spouse.  It is far better, especially in a second marriage where step children are involved, to update your estate plan to exactly what you want for you and your loved ones.
  15. Your own bad health.  One milestone I’m particularly sensitive to is your own bad health, especially cognitive health such as dementia or Alzheimer’s.  Many clients prepare plans when they are young that aren’t considering long term care, Medicaid or other planning, so that should be complete before incapacity prevents it.

Reference: Kiplinger (May 26, 2020) “12 Different Times When You Should Update Your Will”

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