To Trust or Not to Trust: Will v. Trust.

What is Better for You in Your Estate Plan? By Christopher Guest

March 21, 2012

How Assets are Distributed at Death

Probate Assets
Individual assets:
all property titled in the decedent's sole name, without any other owners or a payable on death or similar type of beneficiary designation Cars, stocks, boats, real estate, etc.

Non-Probate Assets Direct transfer with specific beneficiary, including:

Payable-on-death accounts 401(k) and other retirement plans IRAs and Roth IRAs Tax-deferred annuities Life insurance proceeds

Tenant in common assets:

all property titled in the decedent's individual name as a tenant in common with others. Cars, stocks, boats, real estate, etc.

Beneficiary assets with predeceased beneficiaries, no designated beneficiary, estate is named beneficiary, or joint ownership property is no longer owned jointly.

Joint Ownership:
Joint tenancy with right of survivorship property Tenants by entireties property

Trusts

Will v. Trust A Sliding Scale

There is no right answer for everyone. What type of estate plan you need is based on your individual requirements. Many of the reasons to have a trust compliment each other. But, not all the reasons should be weighed equally. Many of the reasons to only have a will compliment each other. But, not all the reasons should be weighed equally. Many of the reasons to have only a will will be the reverse of the reasons to have a trust.

What is a Will?
Legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his property at death through probate administration. For a valid will, testator needs to be:
18 years of age at the time of executing will, and Have a sound mind

Your will allows you to make decisions about:

Who will serve as the Personal Representative/Executor, meaning the person who will be in charge of settling your final affairs and insuring that your beneficiaries will receive their inheritance; What powers your Personal Representative/Executor will have (In Virginia, you specifically need to give the Executor the power to sell real estate); Who will inherit your property; and How and when your property will ultimately be transferred to your beneficiaries. What assets you Personal Representative will use to pay administration costs.

A will can only direct the distribution of probate assets.

Reasons for Having Only a Will

Uncomplicated family relationship husband and wife in first marriage, no children, few assets or all assets held in JTWROS or T by E. Only own real estate in 1 state. You have a small or insolvent estate. No one needs to quickly access your assets. You are okay with lack of privacy by a court filing. You want court oversight for some reason. Need to appoint guardians over minor children. Satisfied with portability as an estate tax planning vehicle.

Reasons for Having Only a Will Part 2

Age and health of testator.
Older and less healthy raises capacity issues.

Low or little chance for contentious issues arising in probate that could lead to litigation. Testators current financial situation. Time to initially fund a trust. Okay with costs associated with probate process. Believe a Power of Attorney can adequately deal with incapacity issues. Not worried about credit issues or divorce with heirs. Do not want to control assets from beyond the grave.

What is a Trust?
A Trust is a legal documents that often are used to control the management and transfer of specific assets.
Trusts divide the legal ownership of an asset from beneficial ownership of assets.

Grantor/Settlor/Trustor person that creates trust and transfers ownership of assets to trust. Trustee is the legal owner of the assets, manages the trust pursuant to grantors instructions in the trust document and manages the assets for the benefit of the beneficiaries. Has a fiduciary relationship to trust and beneficiaries. Beneficiaries receive the income or proceeds under the terms of the trust document. One person can play all three roles at the same time. Even though you have a Trust, you still need a Will
If you have a trust, you will need a pour-over will to move any assets not in trust into trust ownership.

Reasons for a Trust

Having real estate, like a vacation home, in more than 1 state.
Ancillary probate required. If you die intestate estate then there is potential for different distributions.

If you have other personal property with considerable value in other states. Want to avoid or minimize court involvement. Want to avoid probate process that can create considerable probate fees, expenses and other intangible risks. Desire for privacy with respect to your assets. Complex family relationship including 2nd or multiple marriages, children from different marriages, etc. Potential to move to a state with a state estate tax.

Reasons to Have a Trust Part 2

Contentious family relationships. Likelihood of contentious issues arising in probate that could lead to litigation:
the disgruntled heir or disinherited child. Potential to contest/challenge the estate plan.

Complexity and size of estate:

As estate size grows, the need for more complex planning grows. Your estate requires irrevocable trusts or other entities to minimize estate taxes.

Age and health of grantor.

Trusts can better account for incapacity issues.

Easier to control assets and provide post-death control of trust assets. Belief that beneficiaries are unable to make good decisions.
Beneficiaries are spendthrift. Do not like beneficiary's spouse.

What a Revocable Trust Doesnt Do and Other Issues

A Revocable Trust does not reduce your current income tax situation. A Revocable Trust does not provide you creditor protection while you are living.
Upon your passing and trust becoming irrevocable there are creditor protections if the trust is drafted correctly.

A Revocable Trust does not automatically reduce estate taxes federal or state. Doesnt allow you to name a guardian for your minor children. Just signing trust documents is not enough need to fund the trust.

Questions?

Christopher M. Guest, Esq.

888 16th St., NW, Suite 800 Washington, DC 20007 202.349.3969 Email: cguest@guestlawllc.com Twitter: @vaestateplanner Northern Virginia Office Arlington, VA 22207 703. 237.3161 Website: www.guestlawllc.com Blog: vaestateplanner.wordpress.com