Clients often ask which is “better,” a will or a revocable living trust (RLT) for estate planning. Both serve the important purpose of sending your assets where you want them to go after your death, but they work differently. There are pros and cons to each.
With a will, your beneficiaries inherit assets through the probate process overseen by the Clerk of Court. A RLT bypasses the probate process, as your trustee distributes assets to beneficiaries privately, without involving the Clerk. In some states, like Florida or New York, probate is so long and so expensive that estate planners almost always use a RLT. By comparison, probate in NC is relatively short and inexpensive. Whereas a Floridian might save many thousands of dollars and years of time by using a RLT to avoid probate, North Carolinians don’t save huge amounts of money or time by avoiding probate.
A RLT is more expensive and more complicated than a will, but it has some unique features that benefit some clients. The question for each client is whether the benefits of a RLT matter relative to the extra cost and work.
When we set up a RLT, we change ownership of all the client’s currently owned assets into the trust. Instead of you owning your house, your bank account, your furniture, etc., the trust will own them. You will be the trustee of the trust, so you will still have control. You will need to monitor carefully how new assets are titled. If you open a new account at a bank, you will need to open it in the trust’s name, not in your name. The additional work to move your assets into the trust necessitates extra expense. The task of making sure future assets get titled in the trust may be too burdensome for some older or disabled clients (and they may not want an adult child or other person to be a co-trustee with them yet). Younger, healthier clients who are quite capable of doing this may not want the hassle or inconvenience. I make sure clients understand what will be required of them (or them with a co-trustee) in the future. By comparison, with a will, no re-titling of assets (now or in the future) is needed, so it is simpler. The will doesn’t take effect until after the person making it has died.
Due to its flexibility, a RLT can include more detail or conditions than are easy to administer in a will. That customization can increase the cost of a RLT compared to a will. Since a RLT is intended to avoid probate costs, there will be some cost savings after your death to help offset upfront costs of the trust.
A RLT has other features that appeal to some clients. If a client is very private, she may be opposed to having a public record probate file of what she owned at her death and where it went. A RLT is private, with no probate file. Further, by having co-trustees from the start, a RLT can make it more seamless for an older or disabled client to have help from another trusted person with managing assets, and for transitioning sole responsibility to that person when the client can no longer do that himself. Using a trust for this purpose can be more seamless than using a power of attorney alone. Also, if you need trusts for other reasons (minor or disabled beneficiaries), those trusts can be consolidated into the RLT. Finally, some clients are already familiar with the tasks involved in a RLT from a parent or other relative who has one, and they are comfortable with taking on that responsibility themselves. Some clients by personality prefer to keep it simple, and a will is the better approach for them.
There is no one right answer to which approach is better. An attorney can help you evaluate how the pros and cons apply to your situation, and to implement the best plan for you.
Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough. She can be reached at 919-732-7300 or firstname.lastname@example.org.