TRUST or WILL – Which is Right for You?
Either a Will or a Living Trust will pass your assets to your family at your death. Both accomplish the job. Both have pluses and minuses. The most common “minus” cited for a Will is that a Will is probated whereas a Living Trust is not. However, that is too simplistic an analysis. It ignores the fact that the major portion of the work of a probate is not the court supervision of the process but rather the identification and selling of assets, the payment of debts, and the distribution of assets to the correct family members. That also all has to be done when you have a Living Trust. It is just done without the probate court supervising that it is done fairly and correctly.
To determine whether a Will or a Living Trust is best for you, let’s look at some of the relevant issues in each of the categories of “Assets”, “Family” and “Your Goals”. We will look at how those issues influence whether you should select a Living Trust or a Will.
SOME “FAMILY” ISSUES THAT IMPACT THE TRUST VS. WILL DECISION.
- First Marriage. If you are in a first marriage, do not need tax planning (i.e., your and your spouse’s assets are well under $2 million) and you want everything to go to your spouse and then to your children, often you will choose a Community Property Agreement coupled with a Will, rather than a Living Trust, as the simplest way to pass assets at death.
- Sibling Rivalry. If your children do not get along too well or do not trust each other, you definitely do not want to use a Living Trust, with one of your children as the trustee. You may prefer to use a Will, and have the probate judge act as a referee to keep things aboveboard and open for all the family to see what is going on.
- Medicaid. If you or your spouse are older and one of you may need Medicaid, you do not want a Living Trust since it will have to be terminated when you apply for Medicaid. Also, if you are concerned about Medicaid, it may be best for you to use a Will with a Special Needs Trust included as part of the Will.
- Moving out of State. If you and your spouse are likely to move out of Washington, then a Community Property Agreement will not be a good choice since it only works in Washington. In addition, if your move is to a state that does not have community property, then a Living Trust may help you maintain your assets as community property. This is important because community property has some income tax benefits for the survivor when the first spouse dies.
SOME “ASSET” ISSUES THAT IMPACT THE TRUST VS. WILL DECISION.
- Taxable Estate. If you are married, live in Washington, and your and your spouse’s assets total or are likely to total more than $2 million, you need to consider a Credit Shelter Trust to reduce your estate tax. A Credit Shelter Trust can be part of a Will or part of a Living Trust. However, if you need the complexity of a Credit Shelter Trust, then it often makes sense to take the extra step and include a Living Trust in the planning.
- Out-of-State Real Estate. If you own real estate located in another state, you will most likely have to have a probate in that state too. If you choose a Living Trust, you will avoid both a probate in Washington and a probate in all states where you own real estate.
- Right of Survivorship. If all your assets are life insurance or IRAs or other assets where you have named beneficiaries to receive the assets after your death, then you may not need a Will or a Living Trust to distribute the assets after your death.
- Hassle Factor. If you are in the middle of your life, I would rarely recommend a Living Trust just for the purpose of avoiding a probate since the probate will occur, hopefully, a long time from now. The reason I would not recommend a Living Trusts is because a Living Trust has a hassle factor that a Will does not have. A Living Trust only avoids probate if you successfully retitle all your assets in the name of the Trust. That can be a burden in and of itself, depending upon how many assets you have. But in addition, if you refinance your home, you will have to transfer the home out of the Trust for the refinance and then deed it back into the Trust, every time you refinance. For most people in the middle of life, the goal of keeping their life simple now, trumps any concern about a probate later and thus they chose a Will over a Living Trust.
- Incapacity. Sometimes I have a client who has no family member who is appropriate to serve as the client’s power of attorney. In that case, we may chose a Living Trust – not because we are concerned about a probate after the client’s death – but, rather because we want a bank trust department to be the successor trustee to step in and pay bills and make financial decisions, if the client loses capacity.
I have covered some common issues for you to think about as you decide whether you should have a Living Trust or a Will. Deciding which tool – a Will or a Living Trust – is better for you depends on many factors in your life. You should remember “one size does not fit all.” What is right for your neighbor may not be right for you. Many people find it a big help to have a knowledgeable estate planning attorney assist them as they think through the legal issues in their particular family and estate.
Elizabeth A. Perry, a member of the National Academy of Elder Law Attorneys, has been helping Clark County residents with their estate planning needs for over 20 years. Her practice emphasizes wills, trusts, probate and Medicaid planning. You are invited to call her to schedule an appointment or sign up for a class at (360) 816-2485. ©Liz Perry 2015 updated 1/2015
(The above should not be construed as specific legal advice and is intended for general information purposes only)