Do You Need a Living Trust or a Will?

Estate Planner Jan-Feb 2000

Two types of documents can form the basis of your estate plan to transfer your assets to your family upon your death. A will is the traditional method for designating distribution of assets held in your name alone. A living trust acts as a substitute for a will and avoids probate. Both documents may minimize estate tax. Whether you should have a living trust or a will depends on many individual factors.

Weighing the Options

A will’s biggest disadvantage is that it must go through probate in a state court to establish its validity. The probate court supervises the administration of the estate and the distribution of assets. Recent changes in many states provide for minimum involvement by the court under most circumstances. Because the procedure varies from state to state, probate may be expensive and time consuming in some states but not in others. If you die owning real estate located in more than one state, a probate may be required in each state.

A living trust can avoid probate when you die because the trust’s successor trustee takes title to the trust assets and distributes them according to your wishes as expressed in the trust document. But probate will be avoided only for assets in the trust.

This means that to avoid probate, you must move assets in your name alone into the name of your trust. In addition, you are the grantor and may also be the trustee and beneficiary. A living trust is considered revocable — you can change or cancel it at any time.

The Specifics

You can keep modest and frequently accessed assets — such as checking accounts — in your own name or place them in the trust. Assets in your name alone that are not transferred to the trust will pass through a “pour-over” will into your trust when you die. This type of will is used to ensure that all of your property is distributed according to the terms of the trust.

Even if some assets pass through a pour-over will, you can still avoid probate in many states through the use of a procedure that applies to small estates. For example, the laws in some states may provide that assets valued at $50,000 or less may avoid probate by using an affidavit indicating to whom the assets should be delivered. When presented with such an affidavit, a bank would turn over the account that was held by the decedent to the person named in the affidavit.

Living Trust Advantages

A living trust has several advantages over a standard will:

  • A trust is usually easier to amend than a will because in most states no witnesses are required to execute a trust agreement.

  • A trust provides greater privacy because a will filed with the court after death becomes a public record available for inspection.

  • A living trust allows you to plan for your incompetence without court involvement. You name a successor trustee to act in your place if you become disabled and unable to manage your affairs. Without a trust, the court must appoint a conservator or guardian to administer your assets if you do not have a power of attorney. Guardianship requires court supervision and may require approval of all expenditures for you. Procedures for appointing a guardian vary from state to state. Powers of attorney do not require court involvement but often are suspect and if improperly drafted may not give your family needed flexibility.

  • In some states, revocable trust assets are not subject to the after-death claims of your creditors unless the transfer was in fraud of the creditor’s rights. Instead, probate assets must settle these claims. Because the power to revoke the trust is available only to you, the grantor, that power terminates on your death. This may leave creditors with little authority to assert claims against trust assets.

  • It is more difficult for heirs or beneficiaries to initiate and win a lawsuit against a living trust. Heirs or trust beneficiaries can contest a trust based on undue influence or lack of capacity. The longer the trust has been funded and in existence, the more difficult it is to contest. A will is more likely to be attacked successfully partly because it doesn’t take effect until your death. On the other hand, a living trust may provide less protection of the assets from the surviving spouse’s nursing home bills.

Seek Professional Advice

If you would like assistance in determining whether a living trust or will is right for you, please let us know. Our professionals can help answer any questions that may arise when deciding between these two important estate planning methods.