Have you considered what will happen to your stuff when you pass away? Most people haven’t. Not seriously anyway. And so when their time ends, they leave a mess for their loved ones to clean up. If you’d like to save your family from the trouble and squabbling that normally follows a person’s failure to plan ahead, you need to create a will or a revocable living trust, or RLT.
But knowing which document to use is not always so easy. Sometimes a will is ideal. But usually an RLT is better. Here’s seven reasons why.
Speed. Wills go through probate (the court-supervised process for paying your debts and transferring your assets after you die). RLTs do not. The effect is that it takes six months to several years to wrap up a will. By contrast, an RLT can be settled in weeks. So, if you want your loved ones to quickly have clear title to land and other assets, an RLT is the way to go.
Privacy. Again, wills go through probate while RLTs do not. Probate is public. Anyone can look at a will. Anyone can see what property you owned and who you gave it to. A trust, on the other hand, is private. Few people have the right to see it. So few people will know what you owned and who you gave it to, which is good for you and your beneficiaries.
Cost. Wills normally cost less than an RLT in the short term. But they are pricier in the long run. That’s because a will is a two-time expense whereas an RLT is a one-time fee. In other words, with a will, you pay the lawyer for drafting the will and a second time when they probate your estate. For a trust, though, you only pay for the trust since there will either be no probate or an expedited one to address miscellaneous assets that weren’t in your trust.
Potential litigation. Wills are perhaps the most litigated documents in the U.S. legal system. Trusts, in contrast, almost never generate lawsuits. The main reason for the difference is that many people have the right to file a lawsuit challenging a will; few have the same right to contest a trust.
A lawsuit is particularly likely in the following four scenarios. First, if you have no close relatives. Second, if you have several kids and gave a better deal to one kid than the rest. Third, if you’ve been married more than once and kids from earlier marriages get left out or shorted. And, fourth, if you aren’t married but have a long-term partner (for example, a common-law spouse) who is not popular with the other heirs.
If any of these situations apply to you, then you may be an especially good candidate for an RLT.
Ancillary probate. A will must go through probate in every place where you own land. So, if you own land in the CNMI and Guam, the will would need to go through probate here and again in Guam. An RLT bypasses this double dose of delays and expenses because it avoids probate altogether.
Continuity of business affairs. As mentioned earlier, wills go through probate. And probate is public. So if you own and operate a small business and pass it to your heirs through probate, it will be subject to the probate process.
Part of that process will include the probate administrator filing regular reports about the business with the court (so that the court can double check that the business is being handled properly until the estate’s interest is sold). The problem with this is that the reports are public. So, if the estate wants to sell the business, potential buyers can access the same information, which makes it difficult for the probate administrator to get top dollar.
On the other hand, trusts are private and avoid probate. So, a trustee (the person administering the trust) will have an easier time maximizing the value of a sale. Plus, they won’t need to go through the time and expense of obtaining court approval for the sale.
Less estate taxes. Under current law, estate tax is only an issue for the top 1%. But for that fortunate few, a will is a poor vehicle for maximizing their unlimited marital deduction and thus minimizing their estate tax. They would be better served with an RLT that contains sub-trusts such as a credit-shelter trust.
What have we learned? That for most people an RLT is usually better than a will. To verify if that’s the case for you too, speak with a knowledgeable estate-planning attorney about your situation.
This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer.