If you are considering whether you need a will or a trust, congratulations!
By recognizing that you need a legally enforceable plan, you are ahead of about half of your peers. But which approach is best? Will-based planning is usually simpler, less expensive and easier to maintain. Revocable living trusts are a little more expensive but may allow you to avoid probate. Are revocable living trusts as great as some people say they are? Here's what you need to know.
Probate is the court process for transferring property at death to heirs. Probate is required for assets that pass through a will. A trust avoids probate, but only for assets that are titled in the trust. The process of transferring assets to the trust is called funding.
In Alabama, probating a will is not as expensive or difficult as in some other states. This makes will-based estate planning a good option for many people. Because will-based planning is less expensive, it costs less to update your plan at regular intervals, which may be necessary if your situation changes.
Since will-based planning is a good fit for most people, we tend not to recommend a living trust unless there is a special reason. For example, if someone owns a home in Alabama and a vacation property in Florida, a will would require them to go through probate in two states! Avoiding two probates is a good reason for a living trust. A living trust may also be a good choice if there is a risk that a surviving spouse might remarry or change the couples' estate plan, a concern that often exists in blended families. These are just some of the reasons we might recommend a living trust.
Some people ask for a living trust for the sole reason to avoid probate, and we understand that. Probate doesn't sound like much fun. But before you choose a living trust, consider these things:
- The living trust only avoids probate if it is properly funded with your assets. This is the #1 reason that living trusts fail, which just means your heirs end up in probate anyway. People who are not meticulous with their finances are likely to leave assets out of the trust.
- Even if you properly fund the trust, probate avoidance is not guaranteed. If heirs want to fight about the trust provisions, they can take the trustee to court. This doesn't happen often, but it is something to consider.
- While trust administration at death usually costs less than probate, there are still fees involved. The total cost of a living trust plan, from creation to final settlement, is usually greater than a will-based plan.
- If you choose a will-based plan, you can still benefit from the protection that trusts provide. The will can contain trusts to protect the inheritance of beneficiaries who are young or have special needs. Even our most basic wills have these “just in case” trusts. A will can also contain specially drafted trusts for a spouse or adult children who need help managing an inheritance.
- In Alabama, living trusts do not offer better creditor protection than will-based trusts.
- A living trust may have to be collapsed if you or a spouse needs government benefits to pay for nursing home care. For this reason, a living trust is usually not a good fit for an elderly couple whose most valuable asset is their home.
Revocable living trusts can be a great estate planning option for some people. In addition to avoiding probate and discouraging heirs from fighting, they may make it easier for your caregivers to manage your property if you become incapacitated. Before you choose a living trust, make sure you have a discussion with your lawyer about which type of plan is the best fit for you. To qualify for a free estate planning focus meeting with a Ladd Firm attorney, click to register for a seminar or watch our webinar.
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