Will or Revocable Living Trust – Which is Best for Me?

One of the first estate planning decisions you will need to make is whether you want to create a Will or Revocable Living Trust to achieve estate planning goals. Understanding the differences between the two can help you make an informed choice that aligns with your goals and objectives. In this article, I will discuss the differences between wills and revocable trusts, explore their advantages and disadvantages, and provide guidance to help you make an informed choice about which option is right for you.

What is a Will?

A will is the cornerstone of a basic estate plan. When you create a Will you can:

1. Name who will inherit your property after you die. If you don’t have a Will, your property will pass according to a strict formula created by the state legislature rather than the people you choose.
2. Designate guardians. If you have minor children, a Will lets you designate guardians who will care for them if you die while they are still minors. If you don’t name a guardian, a judge who doesn’t know you or your values will appoint a guardian in your place. And the person the judge selects may be the last person you would have chosen.
3. Appoint an Executor: An executor will carry out the instructions in your Will. The executor’s responsibilities include gathering your assets, paying off debts and taxes, and distributing your property to your beneficiaries.

What is a Revocable Living Trust?

A Revocable Living Trust is a more flexible and comprehensive approach to estate planning. Unlike a Will, which only takes effect after you die, a living trust begins working the moment you create it. In addition to transferring your property to your beneficiaries after you die, a Revocable Trust is a valuable management tool while you are alive. It allows you to:

1. Manage Assets: A Revocable Trust lets you transfer property to your chosen beneficiaries like a Will does. However, unlike a Will, which only becomes effective after you die, a Revocable Trust goes into effect immediately when you create it. This lets you to manage your property during your lifetime.
2. Plan for Incapacity: One of the key advantages of a Revocable Trust is that it sets up a management structure for you if you become incapacitated due to illness, injury, or advanced age. This is because the successor trustee you’ve chosen can seamlessly take over managing the trust assets on your behalf, which allows your financial affairs to be handled according to your wishes, without the need for court intervention or guardianship proceedings.
3. Protect your Privacy: Wills have no legal force until they are admitted to probate, which is a public process that can be time-consuming and expensive. Revocable Trusts that are fully funded don’t have to go through probate, which keeps your information private and makes things easier for your loved ones.

Comparing Wills and Revocable Living Trusts to Achieve Your Estate Planning Goals

Benefits and Limitations of Wills

Wills are easy and cost-effective to create. This makes them appealing and accessible to many people. Once you sign your will, you’re done. You tuck it away but review it periodically to ensure it’s still accomplishing your estate planning goals. If something changes in your life, you can update your Will to address those changes.

There are no assets to transfer while you are alive. That won’t happen until after you die during the probate process. Although Will-based plans don’t require as much of a financial investment upfront, they can result in costs and delays associated with probate after you die, which may ultimately outweigh any initial savings.

Benefits and Limitations of Living Trusts

Revocable Living Trusts provide several significant benefits that distinguish them from Wills. During your life, you remain in full control of your property. The trust can specify exactly how your assets will be managed if you become incapacitated, and your successor trustee can step in when necessary without court intervention.

However, revocable living trusts require a bigger financial investment and time commitment initially because there are more documents to prepare and assets to transfer. You’ll still have a Will, but an abbreviated one called a pour-over Will. The purpose of a pour-over Will purpose is to act as a safety net. It captures anything left out of the Revocable Trust and pours it into your Trust at death. Your operating document will be your Trust Agreement, which will outline not only how your property will be distributed after you die, but also how it will be managed while you are living.

Although a pour-over Will will capture property left out of your trust and pour it into your trust at your death, you’ll need to fully fund your trust to avoid probate. This requires transferring assets, retitling assets, and aligning non-probate assets with your trust.

A fully-funded revocable makes probate unnecessary, which results in more privacy and flexibility in managing assets during your life and after your death. However, if you’d rather not make the financial and time commitment, then a Will might be more appropriate for you.

Choosing Your Path: Will vs. Revocable Trust

Whether you choose a will or revocable living trust depends on your individual circumstances, goals, and preferences.

Many people assume Wills are only for people with uncomplicated estates and minimal assets. Likewise, many people assume that Revocable Trusts are only for people with substantial assets and complex family situations. While those are some of the factors to consider when deciding whether to choose a Will or Revocable Trust-based plan, other important factors include:

Cost

For cost-conscious clients, the most cost-effective way to achieve your estate planning goals is with a Will. Creating a Will typically involves lower upfront costs compared to creating a revocable trust. The majority of the costs associated with a Will add up after you die during the probate process. In 2024, the average cost of probate, including attorney’s fees and court costs, is between $3,000 and $4,000. If you want to get your estate plan done but want to minimize your immediate costs, a Will may be your best choice.

Revocable living trusts require a bigger upfront investment, but may result in more cost savings after you die. When your trust is fully funded, your estate can bypass probate altogether. This can spare your estate from the associated fees and time delays. Therefore, if you prioritize long-term cost efficiency and want to spare your beneficiaries from the complexities and expense of probate, a revocable trust may be the better option.

Privacy

Probate is the legal process in which a court validates the will and appoints an executor who will oversee the distribution of assets, settle debts, and distribute property according to the terms of your Will. Your Will, along with details of your estate and beneficiaries, will become part of the public record. If privacy is not a concern for you, then a Will may accomplish your goals.

However, if you prioritize discretion and would like to maintain the confidentiality of your financial affairs, a trust may be a better option. Having a fully-funded revocable living trust will ensure that your estate details remain private. Unlike the public nature of probate, which exposes your financial affairs to anyone who searches the court records, a trust administration keeps your estate plan confidential. This protects your privacy and the privacy of your beneficiaries.

Continuity of Management During Incapacity

Wills don’t provide any disability management features. Therefore, those with Will-based plan should have a robust durable power of attorney naming an agent to handle their financial affairs. A financial power of attorney empowers your designated agent to act on your behalf without the need for court intervention or guardianship proceedings.

However, it’s important to recognize that financial powers of attorney have their limitations. Depending on the scope of authority granted, there may be restrictions or gaps in the agent’s ability to handle certain transactions or make decisions about specific assets. Additionally, financial institutions or third parties may require additional documentation or verification of the agent’s authority, which can pose challenges in accessing and managing assets.

With a revocable living trust, you can designate a successor trustee—typically a trusted family member, friend, or professional advisor—who will seamlessly take over the management of the trust assets if you become unable to do so yourself. This ensures continuity in managing your financial affairs without the the hurdles some agents face, which is especially appealing for business owners. For those prioritizing a robust and efficient incapacity planning strategy, revocable trusts are an appealing choice.

Immediate Access to Funds

In the event of incapacity, you may require immediate access to funds to cover medical expenses, ongoing living expenses, and other financial obligations. Unlike assets held in your individual name, which may be more difficult to access by an agent under a power of attorney, assets held in a revocable trust can be accessed by the successor trustee without interruption. This provides for timely and efficient management of your financial affairs when you need it most.

Avoiding Probate in Multiple States

Without a trust, each property you own in a different state may require separate probate proceedings to transfer. This can be time-consuming and costly. By placing real property within a revocable trust, individuals can sidestep the need for probate in each state where property is held. This streamlined approach not only saves time and money but also ensures a more efficient transfer of assets to beneficiaries, regardless of geographical boundaries.

That being said, some states, such as Texas, authorize the use of transfer on death deeds to transfer property to beneficiaries without a probate process. For individuals with relatively simple estate planning needs and property in states that authorize use of beneficiary deeds, a Will in combination with beneficiary deeds can minimize the expense of probate in multiple jurisdictions.

Contest

If you anticipate someone to contest your estate plan, a trust may be the better option. While it is possible to contest both wills and revocable trusts, revocable trusts are generally more difficult to challenge due to their private nature and the clear documentation of the grantor’s intentions.

Choosing Your Estate Planning Approach

Consider a Will-Based Plan If You:

• Prefer simplicity in initial setup
• Have a straightforward estate
• Don’t own property in multiple states
• Are comfortable with the public nature of probate
• Don’t anticipate anyone to challenge your Will

Consider a Trust-Based Plan If You:

• Value privacy in estate matters
• Own property in multiple states
• Want comprehensive incapacity planning
• Prefer to avoid probate proceedings
• Anticipate someone to challenge your estate plan

Do Revocable Trusts Provide Asset Protection?

While revocable living trust offer many benefits, asset protection is not one of them. Because you can revoke the trust and transfer assets in and out of the trust, creditors will be able to reach into it.

Both wills and revocable living trusts serve important estate planning purposes. Your choice should align with your specific circumstances, considering factors like estate complexity, privacy concerns, and long-term management needs. An experienced estate planning attorney can help you evaluate which option will help you achieve your estate planning goals.