LIDO INSIGHTS | Will vs. Trust – Which One Is Right For You? | June 2022
Last Wills and Testaments (“wills”) and Revocable Living Trusts (“trusts”) are both legal documents that are used to lay the groundwork for the management and distribution of assets after a person dies. In determining which is the right fit for you, it is helpful to go over some pros and cons of each option.
Both documents allow you to specify who is in charge of distributing assets upon your death. In a will, that person is called the Executor, while in a trust, that person is called the Trustee. In addition, both documents allow you to keep distributed assets in protected trusts for your post-death beneficiaries, such as for beneficiaries who are minors, who are financially irresponsible, who have creditor exposure, or who have sizable estates such that estate tax is a concern.
The primary difference between a will and a trust is that a will needs to be administered through the Probate Court system, while a trust allows for the distribution of assets outside of court. The way the trust avoids probate is that, once the trust is created and signed, you would retitle your assets into the name of the trust. While this does not affect how you manage or use your assets, it does require that you interact with various institutions to ensure that assets are retitled properly.
The question then becomes: when is the hassle of dealing with those institutions worth the benefit of avoiding probate? The three main concerns that arise with Probate Court are (1) cost, (2) delay, and (3) publication of private information.
Since Probate Court is a state court system, the cost and the delay depend significantly on which state you are in when you pass. For example, California, New York, and Massachusetts have relatively arduous Probate Court systems that incur high legal fees (including potential fees based on the amount of assets in the estate, not discounted by mortgages or other debt) and long delays lasting 1-2 years or more. Some other states, such as North Carolina, Washington, and Tennessee, often have simpler, quicker, and less expensive processes.
There are four more considerations worth noting when it comes to making the decision between a will and a trust:
- Most probate filings are public record across all jurisdictions. This means that personal information about your assets and your heirs could be accessible by the public, including by people looking to scam or otherwise bother your beneficiaries.
- Probate is not just required in the state in which you pass, but also in every other state in which you own real property at your death. A trust is especially beneficial if you own real estate in multiple states.
- Trusts can provide for simpler management and use of assets during your incapacity, particularly for married couples.
- Trusts can provide for better planning for married couples at the first spouse’s death, which can be especially helpful for blended families or high net worth families with estate tax concerns.
This is often not a simple decision and depends on many factors about you, your preferences, your assets, and your state’s laws. As with all legal decisions, it is important to consult your attorney to ensure that you are making an informed choice that is right for your situation.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.