Wills vs. Revocable Trusts

Tom Vercauteren | 03.07.24

One of the primary questions you must answer when developing your estate plan is whether you will have a will-based plan or a revocable trust-based plan. While both estate planning vehicles allow you to designate where your assets end up, they have important differences that may make one or the other more appropriate for your needs. For instance, a revocable trust is a​“living” document, meaning it takes effect while you’re alive. A will doesn’t take effect until after you’ve passed away and it has been proved in court. Another big difference between wills and revocable trusts is that typically, an estate with a will-based plan will need to go through probate, a process with its own drawbacks and benefits to consider. In this article, we’ll discuss wills, trusts, and the differences between them so that you can better determine which estate planning vehicle is right for you.

What is a Will?

A will is a legal document that provides instructions to your personal representative on how you want your property and assets to be distributed after you die. Some examples of the instructions included in a will are how your tangible personal property should be distributed to your beneficiaries, any specific or charitable bequests you wish to make, who the guardians of your minor children should be, and who should receive the residue of your estate. After you pass, and before any of your beneficiaries can receive your assets, your will must be presented and proved in court and a personal representative appointed. Your personal representative is then tasked with collecting your assets, paying outstanding creditors, covering administrative expenses and taxes, and making distributions in accordance with your will. 

Advantages of a Will

• Wills typically have lower initial costs than other estate planning vehicles.
• There isn’t a lot of paperwork or homework involved in creating a will.

Disadvantage of a Will

• Wills don’t account for incapacity planning. A will doesn’t take effect until after you pass, so having a will on its own doesn’t provide any information on what should be done if you become ill or mentally incapacitated.
• Wills typically need to go through probate. Your beneficiaries won’t receive anything that’s in your will until after the probate proceedings have been initiated and a personal representative appointed.

What is a Revocable Trust?

A revocable trust (sometimes known as a living trust) is similar to a will in that it’s a document that outlines what your assets are and how you’d like them handled. However, unlike a will, a revocable trust will take effect once it’s signed, meaning that your beneficiaries can begin receiving assets while you’re alive. Typically, however, you are both the beneficiary and the trustee during your life, so there’s no ​“middleman” that might deny you access to assets in the trust. It is​“revocable” because you’re able to change it at any point and for any reason, as long as you retain testamentary capacity. 

Advantages of Revocable Trusts

• Unlike a will, a properly coordinated revocable trust doesn’t need to go through probate. As mentioned above, avoiding probate can provide advantages such as reduced cost and increased efficiency for your loved ones, as well as additional privacy. 
• You can plan for potential incapacity with a revocable trust. By planning for incapacity, you can ensure that your decisions will be made by those whom you trust if you’re ever unable to make them yourself. 
• You can set up continuing trusts. A continuing trust is used to hold money for a specific amount of time and isn’t distributed right away. This type of trust works well if you have beneficiaries who are children, and you don’t want them to receive certain funds until they’re older and more fiscally responsible. Setting up a continuing trust is a great way to ensure your money goes toward providing your children, or grandchildren, with the future that you’ve envisioned for them. 

Disadvantages of Revocable Trusts

• Revocable trusts can potentially cost more to prepare. This is because revocable trusts include more information in them than wills and can take more time to draft.
• Revocable trusts involve more​“homework”. Once your trust is established, you need to ensure that your assets are properly coordinated with the trust in order to avoid a probate proceeding upon your death. This involves retitling or updating beneficiary designations, and making amendments to the trust agreement to ensure that it still meets your goals and objectives.
• Revocable trusts do not have court oversight. Without court oversight, there’s some increased risk of theft, improper investment, and other fiduciary abuse by trustees.
• Probate may not be avoided. If your trust is set up improperly, or improperly funded, probate may still occur.

Conclusion

The most important part of estate planning is making sure you have a plan, regardless of what it is. Dying without a will or revocable trust is called passing away ​“intestate”. When this happens, the court will need to step in and distribute your assets in accordance with your state’s intestacy law — which may not be in line with your desires.

When choosing which estate planning strategy is right for you, it is important to consider your unique circumstances and your vision for your loved ones. If efficiency and privacy are important to your estate plan, you may want to think about creating a revocable trust. If your estate is relatively simple and you want to cut upfront costs, you may want to consider a will. An experienced estate planning professional can help you weigh the factors that might impact your estate planning goals. The Trusts and Estates attorneys at Boardman Clark would be happy to help you in making these decisions.

• Wills