Will or Trust?

When it comes to estate planning, what you do with your estate is wide open. However, there are only two heavyweights when it comes to how you pass along your estate. You are either using a Last Will and Testament, or a revocable living trust as the base of your plan. But which one is best? We’ll go ten rounds on this one to see which goes the distance and comes out on top.

In one corner, we have the court-tested, and court-tested, and even more court-tested choice of probate attorneys everywhere; the massive lawfirm money-maker; the renowned and notorious reigning legal document on everyone’s lips, the Last Will and Testament.

And in the other corner, we have the court side-stepping, king of dodging and weaving around probate; the cost-saving, time reducing, contest busting challenger of estate planning; the scrappy underdog of the plan-ahead world, the Revocable Living Trust.

For this match, we’ll be going ten rounds and giving you the blow by blow between the Last Will and Testament and the Revocable Living Trust to see which comes out on top as the better planning document to go the distance for you and your loved ones.

Before we dig into it, here are some simple definitions of a Last Will and Testament and a Revocable Living Trust.

Last Will and Testament according to Investopedia:

“A last will and testament is a legal document that communicates a person's final wishes pertaining to their assets. It provides specific instructions about what to do with their possessions. It will indicate whether the deceased leaves them to another person, a group, or wishes to donate them to charity.”

Continuing with Investopedia, it lists the key takeaways as:

• Having a last will and testament gives you some control over what happens to your assets after your death.
• If you die intestate, or without a Will, your estate, including the distribution of all assets, is settled by the courts.
• If parents with children die without a Will, the courts will appoint a guardian for those who are minors.
• Trusts and financial accounts. including life insurance policies, with named beneficiaries do not pass through probate court.”

As for the revocable living trust, Investopedia also has a definition and key points:

“A revocable trust is a trust whereby provisions can be altered or canceled depending on the wishes of the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries of the trust. A revocable trust is helpful since it provides flexibility and income to the living grantor (also called the trustor). Provisions of the trust can be changed, and the estate will be transferred to the beneficiaries upon the trustor's death.”

And the key points:

• “Trusts are created by individuals assigning a trustee to manage and distribute the assets to the beneficiaries after the owner's death.
• Revocable trusts let the living grantor change instructions, remove assets, or terminate the trust.
• Irrevocable trusts cannot be changed; assets placed inside them cannot be removed by anyone for any reason.
• Revocable trusts allow beneficiaries to avoid probate court and guardianship or conservatorship proceedings.
• However, revocable trusts have upfront costs, involve many steps to fund, and don't exempt the owner from needing a will.”

What Investopedia didn’t emphasize is that the Will is called a “pour-over Will,” meaning if something inadvertently goes through probate, the Will only states that the trust is the beneficiary and therefore doesn’t duplicate the terms of the trust letting the public know who your beneficiaries are.

So now, let’s get ready to rumble!

Round One—Setup cost: A Last Will and Testament duking it out head to head with a Revocable Living Trust on set up costs clearly favors the Will. A revocable living trust is usually a lot more expensive because all of the terms governing how the trust is to be read, interpreted, and executed should be clearly laid out inside the trust so that it doesn’t have to rely on state law. If it did, then it is an open invitation for a judge to be brought in to interpret the provisions in a courtroom and therefore add to the costs to settle. If the estate is to be handled with as little government interference as possible, then as many questions as possible should be answered ahead of time inside the trust document. On the other hand, a Last Will and Testament has relatively few terms because it relies completely on the probate court system, state statutes, and even local court rules for interpretation, and this means more and more expensive attorney fees. So the current count is Wills 1, Trust 0.

Round 2—Ease of Changes: When it comes to making changes to your estate plan, the advent of computers and word processors has made it easy, across the board, to update a Last Will and Testament and Revocable Living Trust. When an attorney is well-versed in their own documents, there should be hardly any difference in the costs of making changes provided there isn’t some major upgrade to the overall documents. So this round should be considered a draw, giving half a point each so it’s Wills 1.5, Trust 0.5.

Round 3—Ease of Understanding: When looking at the documents of a Last Will and Testament and a Revocable Living Trust, the advantage clearly goes to a Last Will and Testament. After all, a Will is typically less than ten pages while a solid revocable living trust is probably more than 60 pages at a minimum. As I mentioned before, the trust has to be as specific as possible regarding a whole host of likely and unlikely contingencies and spell everything out so it doesn't have to rely on state law and the courts to make interpretations. However, the best way to look at the ease of understanding is comparing understanding how a bicycle works versus an automobile. When looking at a bike, the pedal turns, causing the wheel to move forward, the handlebars steer the bike, and there are brakes to make it slow down. Comparing that to understanding how an internal combustion engine works along with a computer-driven power system and braking system is far more complex. However, if you are traveling from Raleigh, NC to Miami, FL, going by bicycle instead of a car just because the bike is easier to understand doesn’t make much sense. Nonetheless, this round goes to the Will, making the count Wills 2.5, Trust 0.5.

Round 4—Allocation and Distribution: When it comes to identifying beneficiaries to get an inheritance, a Will and Trust appear to be exactly the same. After all, both documents list the beneficiaries, what assets or percentages of an estate they get, and even age limits for underage beneficiaries. However, when it comes to how much and how quickly the beneficiaries receive their inheritance and how much that inheritance is, the advantage has to go to the revocable living trust for one big reason: the government probate court process does not need to be followed. The next two rounds will explain why the Last Will and Testament may be on the ropes from here on out. The count is now Wills 2.5, Trust 1.5.

Round 5—Estate Settlement Costs: By its very nature and design, the probate court process is extraordinarily detailed and is often criticized as convoluted, and that’s exactly what you get with a Last Will and Testament. Because of this, an older AARP study showed that probate costs between eight and ten percent of an estate. My own experience broadens that a little to being four to ten percent of an estate, and it can be more. In fact, many attorneys and law firms will offer to be the executor or administrator of the estate for a flat five percent of the value of the probate estate. While the families of clients may consider that cost a bargain if they don’t have to deal with the unfamiliar probate court process, my clients during the planning stage think paying five percent of everything they worked their whole life to accumulate just to handle unnecessary court paperwork is ridiculous. Since a Revocable Living Trust avoids probate, and therefore those costs, the advantage is clearly with the Trust in this round, tying it up at Wills 2.5, Trust 2.5.

Round 6—Estate Settlement Time: Once again, the clear advantage is with the revocable living trust when it comes to estate settlement times. Probate generally takes 6 months to a year and a half, and it can be more. In fact, an estate going two or more years is not rare. In addition to the difficulties of balancing everything down to the penny in multiple reports, filings, and with exacting documentation, there are already built in minimum time frames when it comes to probate. A published notice to creditors can’t be run until after an executor is approved, and then there is a minimum time, three months in North Carolina, before claims are cut off and you can proceed to a final accounting. And this is not to mention the often different but no less abundant paperwork that financial institutions require when liquidating accounts for a deceased person. While records still need to be kept for a revocable living trust, the less rigid procedures mean the trust can be settled much more quickly. This round clearly goes to the Trust, Wills 2.5, Trust 3.5.

Round 7—Privacy: Something most people don’t realize is that probate is an actual court process that is open to the public. Because probate inventories require a copy of the Last Will and Testament, a listing of all assets valued as of the date of death, and the names and addresses of the beneficiaries, all of that information is now out in the open. Many years back, a client of mine called and said he had a Friday afternoon question for me. That was his way of saying he would ask it if I didn’t bill him. He said his dad died in Michigan four months ago… does that have anything to do with him receiving mailings from Mercedes and BMW? Yes. They saw from the probate records that he was going to be inheriting a bunch of money, and they wanted to be first in line to spend it. How nice of them. On the other hand, even when a few assets go through probate with a revocable living trust, no one knows who the actual beneficiaries are, where they live, and how much they are actually inheriting. This is a big round for the Trust. Wills 2.5, Trust 4.5.

Round 8—Maintenance Costs and Time: While it seems that keeping up a Revocable Living Trust would be more work than updating a Last Will and Testament, the fact is this one is a draw. Because a Will only applies to assets that end up in probate, the joint owners or pay on death beneficiaries on accounts need to be updated every bit as much as a trust when assets change, the time is equal. This round is a draw, so the score is now Wills 3, Trust 5.

Round 9—Ease of Contesting an Estate Plan: Depending on the family situation, this one may be an immediate knockout blow. A Trust is much harder to contest than a Last Will and Testament because of the way probate is generally set up, which can vary state to state. But in general, if someone is contesting a Will, all it takes is to file some forms with the probate court, the contest is underway. The main factor here is that there are a lot of attorneys who would take even a weak case without being paid up front because they know that a court is very likely to make sure all of the attorneys get paid out of the estate as long as the case isn’t 100% frivolous. On the other hand, contesting a trust involves filing a civil lawsuit, and those court proceedings make it a lot harder to get attorneys fees paid from the other party. This is why many attorneys would insist on a retainer before getting to work on contesting a revocable living trust. And one thing I have found is that people who want something they are not entitled to rarely want to put up their own money to try to get it. The score going into the tenth round is now Wills 3, Trust 6.

Round 10—Settlement Agent Hassles: Probate is a long, time-consuming and often frustrating process, and when you name executors in a Last Will and Testament, that is what you are signing them up for. I have often commented that being an executor is the worst part-time job you’ll ever have. Sure, the executor gets paid, and it can be lucrative if they are doing all of the work on their own, but make no mistake that it will disrupt their life for the year or years they are in that position. I remember one client who upon finding out just how much work his estate was likely to be still went with a Last Will and Testament and named his younger son as the executor because “it would be a good learning experience” for him. By far, it is a lot less work for a successor trustee to handle final bills, handle the taxes, and distribute assets to the beneficiaries through a revocable living trust, and it can wrap up with a lot less time and disruption in the trustee’s life. This final round goes to the Trust, and the score at the end of the match is Wills 3, Trust 7.

And now the new heavyweight champion of estate planning, the Revocable Living Trust! I hope you found this blog informative, but if you want to learn more about estate planning, revocable living trusts, and avoiding probate, then please check out our free program at www.FreeTrustCourse.com. So with that, I’ll close with what I tell my clients: Please stay safe, plan ahead, and enjoy life, and whatever you do make it a great day.