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Wills vs. Living Trusts

  1. Summary of Advantages to Using a Will
  2. Summary of Advantages to Using a Living Trust
  3. Issues Having No Obvious Advantage between Using a Will vs. a Living Trust
  4. Obtaining “The Best of Both Worlds”
Issue Will Living Trust
During Life:
Cost to implement Modest: only to prepare a Will Greater: to prepare both a Will and a Living Trust; to transfer all assets to Trust; and to educate Trustor(s) re Trust management
Cost to administer Nothing to administer until death Usually little more than if property held individually
Lifetime asset management Will effective only at death (although lifetime asset management should be possible through a Durable Power of Attorney for Assets) Living Trust can include asset management upon disability and avoidance of appointment of guardian of estate
Property Character Retention during Marriage Relatively easy to commingle spouses’ property, both among spouses and between their respective separate and community property Easy to maintain each spouses’ separate property by keeping it in separate trusts
Ability to change the terms Easy, by executing a new Will or a Codicil Easy, by executing an Amendment to Trust
Income tax advantages Comparable All income tax attributes flow through the Living Trust and are reported by Trustor(s), as if the Trust didn’t exist
Time bomb None Property acquired after Living Trust created and never transferred to Trust, requiring a probate proceeding just for that asset
At Death:
Necessity of probate proceeding Requires probate proceeding for Will to take effect and property to pass according to its terms Takes effect at death without necessity of probate proceeding for all property held by Living Trust
Real property in another state Requires “ancillary” probate proceeding in that state to clear title No ancillary probate proceeding required so long as all property held by Trust
Expenses at death Can be large if probate necessary, especially in state (eg, California) providing substantial professional commissions and fees Usually substantially less, due to avoidance of probate & possible excessive professional commissions and fees
Privacy Probate proceeding, including contents of Will, are public Trust administration is private
Disgruntled Heirs & Beneficiaries’ Potential for Contest Will’s terms are public, and a Will contest is relatively easy and inexpensive to file following initiation of probate proceeding, although it must be filed within 4 months of admission of the Will Beneficiaries are not entitled to disclosure of Trust’s terms except as to their individual interest, and Trust contest would have to be initiated by them at their expense, but no comparable Statute of Limitations
Income tax advantages Probate estate is a separate taxpayer for income tax purposes, so some income tax advantages may be possible While Living Trust following death also qualifies as a separate taxpayer, it is more difficult to justify keeping the post-death administration of a Trust open in order to obtain any income tax advantages
Death tax advantages Comparable Comparable
Debtor/creditor advantages Comparable due to ability to publish Notice to Creditors as regards either probate or non-probate assets Comparable
Delays following death Some time necessary to initiate and settle probate proceeding No interaction with Court necessary, so delays and deadlines due to Court aren’t relevant
Interruptions resulting from death Interruptions possible due to Court intervention (eg, obtaining ongoing funds, running a business) No interaction with Court necessary, so interruptions due to Court aren’t relevant
“Nonroutine transactions” under

RCW 11.100.140

 Personal representatives are not subject to “nonroutine transaction” requirements Trustees are so subject, requiring them to notify Beneficiaries before undertaking any “nonroutine transactions”
Causes of action by or against a Decedent Can be brought or defended only by a Personal Representative Decedent’s Trustee lacks comparable authority
Court Accountings If Will itself establishes trusts after death (“testamentary” trusts), then their Trustee may be required to account to the Court annually for the trusts No Court accounting necessary

 

 

1. Summary of Advantages to Using a Will:

  1. During Life:

    1. Easier and cheaper to prepare
    2. Avoids the necessity of transferring all your existing and after-acquired property to a Living Trust.
    3. More convenient:
      • Has no effect until death;
      • Avoids Trust management problems; and
      • You can continue to hold and manage your property just like you always have.
  2. At Death:

    1. A neutral, third-party (a Judge) is available who can supervise the process, ensure that it is proceeding according to law, and resolve any disputes (eg, among your Beneficiaries, between them and the Personal Representative, or regarding title to property or legitimacy of debt).
    2. An objective process is available that extinguishes claims against you and your estate that is quick and fair to debtors, creditors, and your Beneficiaries.
    3. Only a Personal Representative can bring or defend a lawsuit on your behalf.
    4. In Washington, because of its liberal, consumer-oriented probate laws, the probate process can be remarkably simple, quick, efficient, and inexpensive.
    5. Avoids Living Trust “Time Bomb” problem, the possibility that a probate will be needed despite having a Trust.

2. Summary of Advantages to Using a Revocable Living Trust:

  1. During Life:
    1. Can provide for asset management upon disability, possibly avoiding the appointment of a Guardian for your Estate (although with a Will, that appointment might not be needed through the use of a Durable Power of Attorney for Assets).
    2. Easier to keep spouses’ property separate and to maintain its non-community character.
  2. At Death:
    1. Avoids the necessity of a probate proceeding in your home state so long as none of your property remains titled in your name.
    2. Avoids the necessity of a probate proceeding in any other state in which you own real property so long as that property is titled in the name of your Living Trust.
    3. Quicker and less expensive, especially if you are a resident of a state (eg, California) that provides for:
      1. A more formal probate process,
      2. “Statutory” probate commissions and fees based on the value of the assets in your probate estate,
      3. A Court filing fee also based on the value of the assets in your probate estate.
    4. Your estate plan and the administration of your estate are not made public.
    5. Your Beneficiaries are not entitled to disclosure of your estate plans except as it pertains expressly to them.
    6. Reduced likelihood for a contest over your estate plan, due to increased privacy and expense of a contest.

3. Issues Having No Obvious Advantage between Using a Will vs. a Living Trust:

Income or Estate Tax Savings

4. Obtaining “The Best of Both Worlds”

The situation is not really as “black and white” as presented. In practice, anyone using a Living Trust as the vehicle for his/her estate planning will likely (and should) have a Will as well, among other things, to provide for situations that only a Will may provide, such as:

  • Appointment of a list of Personal Representatives in priority order, in case a probate proceeding might be necessary or advantageous for some reason even upon the use of a Living Trust as one’s primary estate planning vehicle.
  • Appointment of a list of Guardians in priority order, perhaps even separate lists for Guardians of the Person and Guardians of the Estate, for any minor children. RCW 11.88.080
  • Appointment of property subject to a Testamentary Power of Appointment. RCW 11.95.060(2)
  • Gifts of tangible personal property by a separate writing, not subject to their being made according to Will formalities. RCW 11.12.260

The Will used with a Living Trust is known as “Pour-Over” Will. A Pour-Over Will will:

  • Contain any of relevant provisions above and
  • Provide that any property held at death by the Decedent/Trustor (ie, property that escaped being transferred into Decedent’s Living Trust during life) to now be transferred (ie, “poured-over”) into Decedent’s Living Trust at death (technically, be transferred from Decedent’s Personal Representative to Decedent’s Trustee).

Practically speaking, you now see that in creating and implementing one’s estate plans, the issue is:

  • Not so much “Should I have a Will or a Living Trust?”
  • As “Given that I should have a Will under any circumstance, should I also have a Living Trust as well?”

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