Just Ask Chuck! By: Charles A. Haas, Esq.
Hey, Chuck. My wife and I had a little get together for the holidays this year. After dinner was finished and the dishes were done, some of us watched football until we got so bored we started to discuss the difference between a will and a revocable living trust, and argued about which one is the best and which would serve our personal and family needs the best.
I know you do a lot of wills and trusts in your daily business and you probably know a lot about them. What, in your opinion is the best. How can we tell if we’re choosing the right one for us. It sounds simple, Chuck, but there’s a lot to it when you don’t know that much about it. We all have a different opinion. Can you help us out?
Probate can be a long, arduous, and costly process – especially in states like Michigan, that aren’t considered particularly “probate-friendly.” Enter an alternative that is being used by an increasing number of people: revocable living trusts.
Like a will, a revocable living trust allows you to determine how your property is distributed when you die. Trust owners can also make stipulations about how to direct specific assets after they die.
The big advantage to using this type of trust is to avoid probate – giving the trust owner more control over how his or her assets are distributed. Because probate is a court procedure, overseen by a judge, things don’t always play out exactly as anticipated.
Actually, everyone would probably agree that the goal is to eliminate the probate process. Even in states where it’s easier, it’s still the better way to go because it gives you more control than you have with a will. And no matter how simple probate is, having a trust and having no probate is much easier.
It is usually advisable for individuals or couples with complex estate-planning needs to meet with an attorney – generally one who focuses on estate planning – to discuss whether a living trust is the right option, and for preparation purposes. For a couple, one question to ask is whether it makes sense to form a joint trust or two separate trusts.
Once the trust is created, it needs to be funded, meaning any assets such as real estate, bank accounts, taxable non-retirement brokerage accounts need to be retitled such that the trust owns them. While the trust can be revoked during the owner’s lifetime, it’s more common for trust owners to make amendments as desired.
There can be downsides to revocable living trusts, however. For instance, most attorneys charge more for drafting a trust than they do for a will. It’s hard to pinpoint a figure though, since it can depend on factors such as how complicated the estate is, who prepares the documents, and what other documents are also being drafted.
Trusts are especially popular in states like Michigan, which have more restrictive probate laws than some other states. Even in states with more friendly probate policies, any additional upfront cost could pale in comparison to the host of fees related to the probate process.
The trusts can also be a good tool for people who own property in other states and may have to deal with multiple probate courts. People who are concerned about privacy might also want to consider a trust since its contents are private, while a will, once it enters probate court, becomes public.
There can also be advantages to using a joint revocable living trust for married couples in community property states. This allows for more flexibility in allocating property at the first death than with traditional wills. Of course, a revocable living trust may not be right for everyone. In complicated estates, for instance, where heirs might battle over distributions you may choose to have your estate go through the probate process since it can be helpful to have the court involved.
Someone who doesn’t own a home and who has limited assets might also prefer to start with a will for cost and simplicity, and then they could consider a trust down the road once they’ve accumulated property or other assets. But anyone who a property should think about a trust.
Here are a few caveats with respect to revocable living trusts:
• It’s important to understand that a revocable living trust is one part of a larger estate plan. People still need documents including a durable power of attorney for finances, and advance health-care directive, a nomination of guardianship (especially if you have minor children) and a living will;
• Individuals with a revocable living trust would also have a pour-over will, which is a special type of will used to make sure that any assets accidentally left out of the trust are added to the trust after the owner’s death. While there is still a probate process that must be followed, if the majority of the assets, particularly real estate, are held in a trust, the probate of the pour-over will, in most states, should be much simpler and there may be a fast-track option for assets under a certain amount;
• Another thing to remember is that retirement plans can’t be owned by a living trust, so it’s crucial for owners of these types of accounts to ensure that their beneficiary designations remain up-to-date and in line with their wishes.