Traditional Will vs. Revocable Living Trust – What Do I Need?
Guest Article Written by Christina Brengel of the Law Office of Christina Stroyick Brengel
There is much talk, and sometimes confusion, about wills and trusts. People are often left with many questions. Which is better? What is best for me? Do I need one or both? The answers will vary based on individual circumstances and preferences. Today, we will take a quick look at both estate plans with traditional wills and estate plans with revocable living trusts.
Most people are somewhat familiar with the basic concept of a will. Simply put, a will is a document that allows you to direct what will happen to your property upon your death. A will can be simple, leaving everything to one person or a group of people, or complex leaving specific assets to various individuals and/or institutions in varying types and percentages. Most wills will appoint an executor, which is the person that handles the administrative duties of settling your estate. An executor has a variety of responsibilities such as locating all your assets, paying any outstanding bills, and dividing your remaining property according to the terms of your will.
Wills can also create trusts. When a trust is created inside of a will it is called a testamentary trust. The most common type of trust created in a will is a contingent trust for minor beneficiaries. These are trusts that will only go into effect if a child, grandchild, or other beneficiary is under a specified age at the time of your death.
Reasons to Use a Traditional Will
Estate plans with traditional wills are often cheaper than estate plans with revocable living trusts. There are many people who do not have a need for anything beyond an estate plan that utilizes a traditional will. Another advantage of a traditional will is that it does not require the testator (the person writing the will) to re-title their assets. Often, people who do not have a specific need for a revocable living trust prefer an estate plan with a traditional will.
Revocable Living Trust
A trust is one of the most flexible legal tools that lawyers have at their disposal. But what is a trust? In simple terms, a trust is an entity that is set up to hold assets for someone’s benefit. The person who creates the trust is called the settlor. The person who benefits from the trust assets is called the beneficiary. The person who manages the trust assets and distributes them to beneficiaries according to the terms of the trust is called the trustee. Often, when people think of trusts, they think of traditional irrevocable trusts (for example, the kind that you hear of grandparents setting up for their grandchildren) that have been around for centuries. We will not be discussing that kind of trust today. Revocable living trusts are a different kind of tool.
Revocable living trusts have become increasingly popular among estate planning attorneys for several years. A revocable living trust is set up for the benefit of the person creating the trust. Thus, the settlor of a revocable living trust is also the beneficiary. Furthermore, many people who establish a revocable living trust also act as their own trustee, at least initially.
A revocable living trust, as its name suggests, is revocable. This means the settlor can put assets into and pull assets out of the trust during their lifetime. The settlor can also change the terms of the trust or terminate the trust completely. However, once the settlor dies, the trust becomes irrevocable. During the settlor’s life, the assets in the revocable living trust are used for the benefit of the settlor. Upon the settlor’s death, the successor trustee distributes the remaining assets in the trust according to the terms of the trust.
Because a revocable living trust provides a way to distribute assets upon a person’s death, people often ask if they still need a will. The answer is yes, but it can often be a much simpler will. At a minimum, people who establish a revocable living trust need a “pour-over” will. A pour-over will is a simple will that leaves everything remaining in a person’s estate to their revocable living trust.
Does a Revocable Living Trust Avoid Probate?
There are many reasons that people decide they want to utilize a revocable living trust for their estate planning needs. I often meet with people who tell me they have heard that having a revocable living trust will allow them to avoid probate. That is possible, but not guaranteed. In order to avoid probate, a person must put all their assets into their revocable trust before they pass away. Transferring assets into a revocable living trust usually has additional up-front costs because an attorney is often needed. If avoiding probate is one of your goals/purposes for having a revocable living trust, it is critical to remember that you must continue to put your assets in the trust as you acquire them. For example, if you set up a revocable living trust and put your home into it, but 20 years later buy a different house, you must put that subsequent house into the trust as well. Do people ever forget to transfer all their assets? Yes. But the good news is, it doesn’t mean that your entire estate plan fails. That’s why you have the pour-over will.
Other Reasons to Use a Revocable Living Trust
There can be several other good reasons to utilize a revocable living trust. A few examples are:
- Real Property in Other States – Real property, which includes mineral interests, must be probated in the state where it lies. So, if you own real property in another state, you could potentially have to probate assets in multiple states. Probate laws vary from state to state. In some states, it is a fairly simple process; similar to Texas. In other states, it can be quite cumbersome, costing a lot of time and money. This is a scenario where having a revocable living trust can save a lot of hassle. For example, if you live in Texas, but own a vacation home in another state, you may want to put the vacation home into a revocable living trust. That way, when you pass away, the trust already owns it. The trustee can then distribute the property without having to worry about a second probate out of state. In this scenario, an individual can decide whether they want to put all their assets into the revocable living trust, or just use it for the vacation home.
- Privacy – Some people choose to utilize a revocable living trust for privacy purposes. When a will is filed for probate, it is public record. At times, people don’t want everyone to know the terms of their will. A revocable living trust can help here as well. Even if the pour-over will needs to be probated, the trust document does not have to be filed with the court.
- Incapacity Planning – A revocable living trust can name a successor trustee who will take over managing the trust in the event you become incapacitated. This can help avoid the need for a costly guardianship.
These are only a few reasons that people choose to utilize revocable living trusts. As mentioned above, trusts are incredibly flexible documents. They can be used in a variety of ways and can help provide creative solutions to difficult problems. However, it should be noted that a revocable living trust is not a proper vehicle to use for tax planning purposes.
What Do I Need?
At a minimum, everyone should have a will. Whether or not a revocable living trust should be included in your estate plan will vary from person to person. There are advantages to estate plans with traditional wills and advantages to estate plans with revocable living trusts and pour-over wills. To determine what will best suit your needs and desires, it is best to sit down with an experienced estate planning attorney.
*This article is written for informational purposes only and is not intended to convey legal advice or create an attorney-client relationship. If you are in need of legal assistance, contact a qualified attorney.
About the Guest Author:
Christina Brengel, with the Law Office of Christina Stroyick Brengel, is a dedicated and passionate attorney serving the greater Houston area and beyond. Her primary practice areas include Estate Planning (Wills, Trusts, etc.), Probate, Guardianship, and Family Law. Whether your estate is simple or complex, Christina can help you create a plan that will ensure your wishes are carried out and your loved ones are cared for.