The foundation of most estate plans is either a Last Will and Testament (“Will”) or a Revocable Living Trust (“RLT”) combined with a pour-over Will. A Will instructs your Executor how to transfer your property after death. RLTs also give instructions as to how to transfer your property after death. However, they accomplish this in a different Way. RLTs also provide certain protections while you are living.
If you use an RLT, you will control the funding of your trust. When you fund your trust, you will be forced to organize and understand your assets. It requires you to play a more active role in your estate plan. If you find an account without a beneficiary designation or an account that is not titled the way you wanted, you have the opportunity to fix the problems. If you use a Will-based plan, your executor will gather and re-title your assets after your death. And your Executor will be stuck with what he or she finds.
Trust-based plans also provide better incapacity protection that Will-based plans. A Will is not effective until it is probated. Therefore, 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. With an RLT, you not only select who will serve as your successor trustee, you also write the rules for when that person takes over.
Sometimes third parties, such as financial institutions or long-term care facilities, 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.
A fully-funded RLT can also prevent a family dispute over control of your assets, should you become incapacitated. A proceeding to establish a guardianship would be ineffective because you don’t own your assets in your individual capacity. Instead, they are held in trust for your benefit. Therefore, even if a guardian is appointed for your estate, the guardian would not have access to assets held in your RLT. Your choice of successor trustee will control.
You may wish to use a Will-based plan if you believe that court supervision of the administration process would be beneficial. On the other hand, a fully-funded RLT will avoid the expense and delay of probate. If you own real estate in another state, your executor will likely have to probate your Will in both states. This can be avoided if you title your property in an RLT. With a Will-based plan, your estate file, including your Will, inventories and accountings, will become public records. Because RLTs are not supervised by the court, they remain private.
RLTs can do a better job of distributing assets if you have multiple accounts, because you decide once how your assets will be distributed and then retitle assets in the RLT or designate assets to be paid to the RLT. Your RLT gives one set of instructions for the estate rather than having to rely on multiple agreements, policies, beneficiary designations and contracts.
Wills are simpler that RLTs, but provide fewer benefits. RLTs have to be funded in order to work. And they make your estate plan more complicated. But they provide better protection