Estate planning is crucial for managing and distributing your assets after death. But which plan is best for you: a will-based or a will-and-revocable trust-based estate plan?
In New York state, you typically have two options: a will-only plan or a will and revocable trust plan. However, it’s essential to understand that these options may not provide equal asset protection or help you achieve your goals. According to Forbes (June 25, 2023) “Which Is Best For Your Estate Plan: A Will Or Trust?” plans incorporating both are the most effective approach.
What are the differences between a Will vs. Trust? One key difference between a will and a trust is how they handle property distribution. Assets passed through a will go through probate, while assets owned by a trust avoid probate. When a will is utilized, the property title first transfers to the estate and eventually to the final beneficiaries. If you become disabled, whoever holds your power of attorney (POA) must present it to financial institutions for acceptance to manage your assets. The courts must be involved in a conservatorship or guardianship proceeding without a POA.
What is Probate? Probate is the legal process in which a court validates a deceased person’s will and ensures that their assets are distributed according to their wishes. It involves gathering the deceased person’s assets, paying off any debts or taxes owed, and distributing the remaining property to the beneficiaries mentioned in the will. The purpose of probate is to ensure that the deceased person’s estate is settled correctly and transparently.
Probate has its advantages and disadvantages. The most well-known drawback is the cost and time involved. Probate requires a detailed inventory of assets and liabilities to be submitted to the court. The court reviews these documents and allows challenges to the will. Distribution of assets to heirs can be delayed until approval is granted.
Probate also incurs fees, which can be significant. However, some states have streamlined probate processes, making them less costly and time-consuming. Lengthy probate is usually associated with high-value estates.
Another concern with probate is the lack of privacy. Once a will is filed with the court, it becomes a public record. Many wealthy individuals and celebrities transfer their assets into a trust to avoid the lack of privacy that comes with probate. One famous American actor and singer, Bing Crosby, is said to have revised his estate plan by moving most of his assets to a revocable trust (or living trust) after his first wife died and details of her will were publicized. However, probate has advantages, such as providing checks and balances.
Wills are also more susceptible to challenges than trusts, as trust details remain private. Some choose wills because they believe they can easily change their distribution preferences. On the other hand, trusts require the legal transfer of property ownership to the trust itself.
Revocable Trusts (sometimes referred to as living trusts),
A revocable trust is a flexible legal arrangement where you transfer assets (such as property, investments, or bank accounts) to a trust you can modify or revoke during your lifetime. It offers control, privacy, and the ability to avoid probate while allowing you to make changes as your circumstances evolve.
A revocable trust offers a smoother transition of management and ownership. The grantor initially serves as the trustee, but successor trustees automatically take over upon incapacitation or death. This process does not require court involvement.
Trustee transitions can be complicated, as financial institutions require substantial evidence before accepting the authority of a successor trustee.
Each estate plan should be tailored to the individual’s needs, with careful attention to detail. By partnering with an experienced estate planning attorney, you can protect your family and legacy while achieving your goals for efficiency and privacy.
Summary:
Flexibility and Privacy: Wills are public documents, while trusts offer a private and confidential way to manage your assets and distribute your estate.
Probate Avoidance: Trusts bypass the often time-consuming and costly probate process, ensuring a smoother transition of assets to beneficiaries.
Immediate Action: Trusts allow for the immediate transfer of assets upon your passing, unlike wills, which may require time for probate.
Incapacity Planning: Trusts can include provisions for managing your assets in case of incapacity, offering a seamless transition without court intervention.
Asset Protection: Trusts can shield assets from creditors and potential legal claims, providing an added layer of security.
Complexity and Costs: Setting up a trust can be more complex and potentially costlier than creating a simple will.
Control and Restrictions: Trusts offer more control over how and when assets are distributed, allowing you to impose conditions or restrictions on beneficiaries.
Legal Challenges: Wills may face more challenges in court, while trusts are often harder to contest, providing a more stable distribution of assets.
Continuity and Legacy: Trusts can offer a structured approach to maintaining and passing on family wealth, ensuring a lasting legacy.
In choosing between a trust and a will for your estate planning, carefully evaluating the pros and cons outlined above is crucial. Consider your unique circumstances, asset complexity, and desired level of control and privacy. The most important thing to remember is whatever plan you choose, having one is essential. Let our experienced tean help you decide which way to pass on your property and protect your loved ones is right for you. Contact our office and let us help you set up the right plan for your family.
Reference: Forbes (June 25, 2023) “Which Is Best For Your Estate Plan: A Will Or Trust?”
