I am often asked by clients should I get a will or a revocable living trust. For many people a will accomplishes everything they need. But for other people the benefits and flexibility that come with having a revocable living trust makes it a better option for them. For individuals who do not own real property and have small estates there are other options that should also be explored.
First off you need to understand the definitions of both a will and a trust.
A will, or Last Will and Testament, is a legally enforceable document which sets forth how you want
your affairs handled and assets distributed after you die.
A trust is another method of transferring your assets.
A trust is created for a variety of functions, and there are many types of trusts. For asset distribution most trusts can be lumped into two categories: living and testamentary.
A will can be used to create a testamentary trust which means the trust is created only after you die, think of a will that sets up a trust for a minor child or grandchild that funds education expenses or pays money to that person over a period of time.
A living revocable trust is created while you are still alive and the person making the trust, the trustor, maintains ownership of the property held by the trust and can change the terms of the trust during their life.
In Alaska, wills must be admitted to the Court for probate. So long as no one is contesting the validity of the will or the assets of the deceased individual, most estates are handled in an informal probate setting which is not that expensive or demanding.
Unlike a will, a living trust passes property outside of probate. There are no court or attorney fees after the trust is established. Your property can be passed immediately and directly to your named beneficiaries. However, almost all clients have property that is not in the trust at the time of their death and those assets may have to be dealt with through probate depending on the amount and nature of the assets which are not held by the trust.
There are some risks to consider when relying solely upon a will. If your will is contested, loved ones may need to hire an attorney, which would then add additional fees. A will does not offer any possible reduction to the estate tax burden, whereas some trusts may offer that.
One important thing that a will can help with that a trust cannot is if you have minor children you can nominate a guardian for those children in a will. If a guardian is not appointed at the time of death, your surviving family will have to seek help in a court to have a guardian appointed for your children. The person appointed may not be who you would have wanted to be entrusted with your children.
Creating and funding a revocable living trust is more expensive than having an attorney draft a will. And before an individual decides to obtain a revocable living trust, they should talk to both their financial advisor and tax professional to fully understand the impacts a trust will have on their assets. A living trust must be actively managed after it is created.
Most importantly, however, a living trust is useless unless it is funded. A living trust only can control those assets that have been placed into it. The funding process is necessary but can be tedious. If your assets have not been transferred or if you die without funding the trust, the trust will be of no benefit as your estate will still be subject to probate.
If a living trust is properly written and funded you can:
Probate is the process of transferring assets from a decedent's ownership into the names of their beneficiaries. It's required when someone dies leaving a will, or even if they don't leave a will, because the property has no other way of passing to a living individual.
A revocable living trust doesn't require probate because the trust owns the assets and the trust hasn't died. It's a private contract between you as the "trustor" or "grantor" and the trust entity. In most cases, the grantor serves as the trustee of their own revocable living trust, managing the property placed within it during their lifetime.
A successor trustee can be named to step in and take over management of the trust when the grantor dies, settling it and distributing its property to the beneficiaries named in the trust documents.
A significant advantage of a revocable living trust over a will is that it can prepare your estate in the event you become mentally or physically incapacitated, not just when you die.
Your successor trustee can also step in if you become mentally incompetent or physically incapable to the point where you can no longer handle your own affairs. Your trust documents can specify how it should be determined that you are indeed disabled, such as by certification by your own physician or by a team of physicians who must all concur.
Your property would not transfer to your beneficiaries if this happens, as it would at your death. Your successor trustee would simply manage your finances and property for you because you're unable to do so.
A will can't provide for this eventuality. Your loved ones would have to ask the court to appoint a guardian or conservator to manage your affairs if you don't have a revocable living trust.
A will becomes a matter of public record when it's submitted to the court to open probate. Anyone can stop by the courthouse and read it. They'll know what you owned and to whom you left it.
No one other than the beneficiaries and your heirs are entitled to see your trust documents. They won't become public record unless an heir or beneficiary files a lawsuit to challenge the validity of your trust.
If you need an experienced attorney to draft your will, trust or both, I welcome you to contact me online or call my Anchorage office at 907-306-9166. I offer estate planning services for individuals and families throughout Alaska.