Revocable Trust Vs. Will: Which Is Right for You?
This year’s global pandemic ignited a fire under many individuals who had put off writing their will.
In fact, at the start of the pandemic back in March, many Americans turned to online sources to create their wills. Two online companies, Gentreo and Trust & Will, experienced a 143% and a 50% increase, respectively, in users creating an online will.[1]
There is some controversy if online wills are valid or if they will be thrown out in court. But it is certainly a positive sign that many individuals are now planning for the future, especially when you consider that more than half of all Americans have not created a will or a plan in the event of an untimely death.
So, my question for you: Do you have a plan for your estate?
Now is a perfect time to consider your options and to determine what estate planning option is best for you.
A Last Will & Testament
Simply put, a will is a legal document that spells out how your assets—real estate, family heirlooms, investments, etc.—should be divided up among your heirs. A will gives you the ability to pinpoint your heirs, detail who receives specific items and determines how your assets should be divided among them.
A will is particularly important if you have young children still living at home. In your will, you can name the person or persons who would have legal guardianship of your children if something would happen to you while they are still minors.
Along with your will, your attorney will likely recommend that you name a Power of Attorney. Your Power of Attorney will manage your assets, pay your bills and make financial decisions if you become unable to handle these decisions on your own. They will also be in charge of handling your affairs at the time of your death.
It’s important you understand that without a will, your State of residence will determine how your assets will be distributed. In other words, you will have no say in who receives what portion of your estate.
A Revocable Trust
A revocable trust, or a living trust, goes above and beyond a will when it comes to your estate planning.
Like a will, a revocable trust is a legally binding document. The document places all of your assets—real estate, investments, bank accounts, vehicles, other valuables, etc.—into an officially titled trust that you can use for your benefit during your lifetime, as well as details where these items will be distributed upon your death.
With a revocable trust, you are the main trustee, and your spouse can be a co-trustee, which gives you the ability to maintain complete control of your assets. In other words, you can make changes to the trust and underlying provisions at any point in time.
You also have the ability to name a successor trustee. This gives controls over your assets similar to a power of attorney. Your successor trustee would handle financial decisions if you became incapacitated and would distribute your assets to your heirs upon your death. The difference between a trustee and a power of attorney, though, is that there wouldn’t be any court involvement.
Revocable Trust vs. Will
Now, that brings up a very big difference between a revocable trust and a will.
With a will, you have to go through probate, which is a legal process that determines the value of your estate, settles your debts, pays your taxes and distributes your assets to your beneficiaries. The probate process can be costly, ranging from 5% to 10% of the value of your assets, and it can last anywhere from nine months to two years.[2]
It’s also worth noting that the probate process is not private. A will is a public document, leaving it open to anyone to view the details of your estate and, in turn, it makes it easier for individuals to contest.
On the other hand, a revocable trust is private and difficult the contest. A revocable trust also enables your heirs to bypass the lengthy and costly probate process. Your successor trustee and attorney will handle the distribution of your assets at the time of your death, away from public view.
I should also add that, if you have assets in more than one state, you’re subject to probate court and public records exposure in more than one state. Your heirs could also be required to travel to each state in order to settle the estate. A revocable trust ensures that’s avoided.
Overall, there are benefits to creating a will and setting up a revocable trust to ensure that your assets are handled properly at the time of your death. If you would like to discuss your estate planning and what options are best for you and your family, give me a call today.
Please click here for important disclosures.
[1] https://www.cnbc.com/2020/03/25/coronavirus-pandemic-triggers-rush-by-americans-to-make-online-wills.html
[2] https://www.schwab.com/resource-center/insights/content/what-is-a-living-trust-do-you-need-one