We are often asked whether a Will or a Trust is most appropriate for a client’s particular situation. Our answer? It depends on how the client wants their assets passed to their beneficiaries, if they want to avoid probate, the value of their assets, and their desire to create a plan based on their wishes and values. To determine which vehicle is most appropriate for a particular client, we like educate them about the similarities and differences between Wills and Trusts.
Last Will and Testament
A Last Will and Testament serves a number of critical functions:
- Specifies who you want to inherit your property when you pass
- Names a guardian for minor children (only place one can legally do this in Arizona)
- Names a conservator to manage assets of minor children
- Names a personal representative to administer your estate (the person who is responsible for opening probate, gathering assets, distributing assets per the terms of the
- Will, dealing with the court, paying creditors, filing a final tax return, etc.)
Using a simple Will as the cornerstone of your estate plan has a number of drawbacks:
- If you are disabled, it does not give anyone the ability to manage your assets while you are unable
- With basic Wills you can’t specify when and how heirs receive property (distributed outright if age 18 or older)
- No creditor protection
- Requires probate
- Becomes public record during probate
Probate
Many people are concerned about probate, and wonder if it is really that bad. In some situations it can be a relatively straightforward (although time consuming) process, but in other situations it can get very ugly. Some things to think about regarding probate:
- Probate is the judicial process of transferring assets out of the name of the deceased and into the name of heirs
- Public process
- Can be costly – I charge $2,500 plus costs to handle an uncontested, informal probate (this is the best case scenario probate)
- High potential for family disputes
- If disputed, could turn into full blown litigation with motions, discovery, depositions, hearings and even trial
Probate can sometimes be avoided. If a deceased person has less than $75,000 in personal property and/or less than $100,000 in real property at the time of death, probate can be avoided using a small estate affidavit. Probate can also be avoided by using a fully funded Revocable Living Trust.
Revocable Living Trusts
A Revocable Living Trust has a number functions:
- Specifies who you want to inherit your property when you pass
- Controls how and when assets are distributed (ie. for college, at certain ages, etc.), and can reflect your wishes and values
- May provide creditor protection for beneficiaries
- May provide for long term wealth preservation and accumulation
- Private and confidential
- Allows your successor trustee to manage your assets if you are unable
- Avoids probate if properly funded
- May include income and/or estate tax planning
- Good in every state
An important part of using a Trust is Trust funding. This is the process of transferring assets out of your name and into the name of the Trust. When you do this properly, probate can be avoided. Since probate is the process of transferring assets out of the name of the deceased person and into the names of the heirs, probate is unnecessary because the deceased person already transferred all of the assets out of their name and into the name of the Trust.
You might have noticed that you cannot name a guardian to care for minor children with a Trust. However, when we prepare a Trust-based estate plan, we include a Will for two purposes: 1) to name a guardian and 2) if any assets didn’t make it into the trust to “pour” whatever assets are outstanding into the Trust.
Will vs. Trust
Last Will and Testament
- Transfers assets by terms of Will
- Probate required
- Public
- Transfers assets outright
- No disability planning
- No creditor/predator protection for heirs
- Less expensive
Revocable Living Trust
- Transfers assets by terms of Trust
- May avoid probate
- Private
- A beneficiary’s funds in the Trust may be creditor/predator protected
- Transfers assets when and how you specify
- Reflects your wishes and values
- May include long term wealth preservation and accumulation strategies
- May include income and/or estate tax planning
- Includes disability planning
- More expensive
The Neal Law Firm offers Will-based and Trust-based estate plan options to fit your individual needs. Call us today at (480) 699-7992 to get started and talk to a Scottsdale wills and trusts attorney.
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