The foundation of your estate plan will either be a Will or a revocable Trust and pour-over Will. We regularly prepare both Will-based plans and Trust-based plans, depending on the specific facts of your situation. Below is a comparison of the primary differences.
Funding & Control. Using a revocable Trust requires more work on the front end but gives you more control. If properly maintained, a Trust-based plan also reduces the work of your fiduciaries upon your death. When you fund your Trust, you will be forced to organize your assets. If you find an account without a beneficiary designation or an account that is not properly titled, you can fix the problem. If you find that you have too many accounts, you can consolidate them. If you use a Will-centered estate plan, you don’t have to do anything now. But your executor will have to do more work and will be stuck with what he or she finds.
Assurance that Your Plan Will Be Implemented. When you use a Trust-centered estate plan, you can be assured that your estate plan will be carried out. Wills can be lost, destroyed, or ignored. If you disinherit your wayward son in favor of your grandchildren, you probably don’t want him to find your Will. He may think that intestacy is a better option. Although that is a crime, it does happen.
Incapacity Protections. With a Will-based plan, incapacity protection relies solely on powers of attorney (“POAs”). Your financial POA will designate an agent who can make decisions on your behalf. Occasionally, third parties are reluctant to honor a POA. They are more likely to accept the authority of a successor trustee than an attorney in fact, because the successor trustee is the legal owner, not just an agent for the principal. Because a POA simply creates agency authority, the agent under your POA cannot overrule your decisions. This could create a problem if you do not recognize your cognitive decline and persist in undoing the work of your agents or put yourself in a position to be exploited or otherwise harmed. A full-funded revocable Trust would prevent this potential problem. A Trust can also prevent a family dispute over control of your assets, should you become incapacitated. A proceeding to establish a guardianship would be both unnecessary and ineffective because you don’t own your assets in your individual capacity. Even if a guardian is appointed for your estate, the guardian would not have access to assets held in your Trust. Your choice of successor trustee will control.
Privacy. With a Will-centered plan, your estate file, including your Will, inventories and accountings, will become public records. Because revocable Trusts are not supervised by the court, they remain private. People who post pictures of their breakfast on social media don’t care about privacy. But it is very important to others.
Continuity of Distribution. A Trust gives one set of instructions for your beneficiaries. Instead of relying on multiple beneficiary designations, contract provisions, and your Will, you can point all of your property toward your Trust. You do not have to worry about whether certain accounts gain or lose value, or adjusting beneficiary designations in the future.
Administration. The process of estate adminisration is typically simpler with a Trust-based plan because you have done much of the work on the front end. When you pass away, your probate estate is made up of any property that is not automatically transferred to someone else by operation of law or contract. Your executor collects all of your property and then disburses it in accordance with the terms of your Will. This is all accomplished under the supervision and authority of the Clerk of Superior Court and under the terms of Chapter 28A of the N.C. General Statutes. If you use a revocable Trust plan, you fund your Trust now. Upon your death, your successor trustee distributes the trust assets pursuant to the terms of your Trust. Chapter 36C applies to these Trusts, but almost everything in that chapter can be modified. A fully funded revocable Trust will avoid the need for probate and court oversight. However, if you are concerned that your family will not administer your estate correctly, probate may alleviate those concerns.
Long-term Care Planning. Revocable Trusts are not great tools for long-term care planning. You may wish to use the probate process if one of your planning strategies is to fund a testamentary special needs Trust for your spouse.
These are all important factors to review in determining the type of estate plan that is right for you. In the end, we commonly use Will-based estate plans for clients who either wish to create a testamentary special needs Trust for a spouse, or who have modest estates and wish to leave outright distributions. Clients with moderate to high net worth who recognize the value of comprehensive planning typically opt for a Trust-based plan.