There are many estate planning strategies available for passing your financial legacy across generations, but what works best for one family may only work for some. Some of these estate planning tools work best together, says the recent article, “Which Is Best For Your Estate Plan: A Will Or Trust?” from Forbes. One of the key differences between a will and a trust? Property passed through a will goes through probate, and property owned by a trust avoids probate.
There are pluses and minuses to probate. The best-known disadvantage of probate is its cost and the time it takes to settle matters. Probate requires a complete inventory of the estate’s assets and liabilities to be compiled and submitted along with the will to the court. The court then reviews these documents and allows people to challenge the will. Assets may not be distributed to heirs until the court approves.
There are fees associated with probate; in some states, going through probate can be costly, even if the estate's total value is small. Probate is a streamlined process in other states, making it less expensive and time-consuming. These states reserve the traditional lengthy process of probate for high-value estates. Your estate planning attorney will know the process in your jurisdiction.
Another issue for heirs is the lack of privacy in the probate process. Once the will is filed with the court, it is open to the public. Many celebrity wills are available online. One famous American actor and singer, Bing Crosby, is said to have revised his estate plan by moving most of his assets to living trusts after his first wife died and details of her will became public.
Many wealthy people and celebrities transfer most assets into trusts to avoid publicity. However, the public scrutiny of a will and probate has certain advantages. Probate provides checks and balances. In addition to the court reviewing the details, heirs and potential heirs can see the asset inventory presented to the court and the details of the estate’s distribution. This provides an opportunity to see if assets are missing or if someone seems to have persuaded the decedent to change the terms of a will.
A will is more likely to be challenged than a trust since trust details remain private. The rules for challenging wills are well-established. Some people choose to use a will because it seems easier to change their minds about how they want assets to be distributed. With a trust, you have to name the trust as a legal property owner. This is done by transferring the legal title of the property to the trust. The trust must have legal title to assets to be funded and to work properly.
A revocable or living trust provides for a smoother transition of management and property ownership. The grantor—the person who establishes the trust—serves initially as the trustee and manages the property. Successor trustees named in the agreement automatically take control of the trust if the grantor becomes incapacitated or dies. There is no court involvement.
When a will is used, title to property first passes to your estate and eventually to final beneficiaries. If you become disabled, whoever holds your power of attorney must present it to financial institutions and have the POA accepted before they can manage assets. If there’s no POA in place, the courts will need to be involved in a conservatorship or guardianship proceeding.
Trustee transitions aren’t always smooth, as financial institutions must decide to accept the authority of a successor trustee, which requires a high degree of substantiation before recognizing the trustee’s authority.
Each estate plan needs to be designed for the needs of the individual situation, and all the details must be carefully managed. By working with an experienced estate planning attorney, your family and your legacy will be protected, and your goals for efficiency and privacy can be met.
Reference: Forbes (June 25, 2023) “Which Is Best For Your Estate Plan: A Will Or Trust?”