Any estate plan should include a foundational document that expresses your wishes for passing assets to your beneficiaries. This document can take the form of a Will or a Revocable Trust. We can help you decide which option best suits your estate planning needs, but the following information can provide some background for that conversation.
Definitions of key terms
- Grantor(s)
- The person (or married couple) who creates the Revocable Trust.
- Trustee
- The person or company named by the Grantor(s) to legally hold title to all property held in the Revocable Trust. The Trustee is responsible for managing the trust assets and for making distributions to its beneficiaries.
- Beneficiary
- The person or people who are entitled to benefit from the trust assets, either now or in the future.
- Probate
- Probate is a legal process that requires court involvement. If your estate plan uses a Will as its foundational document, probate is required after your death in order to legally authorize someone (your executor or personal representative) to pay your bills, file your taxes, gather and value your assets, and then transfer them to the people or places they are supposed to go.
Why is this decision important?
Choosing between a Will and a Revocable Trust Plan will dictate fiduciary choices, the type of documents that your attorney prepares for you, and potentially the scope of your own homework needed to implement your estate plan.
How does a Revocable Trust work?
A Revocable Trust functions essentially as a “Will substitute” and would include all your beneficiaries and distribution provisions in it.
- It is created during your lifetime. While you are alive, you have full access to all the funds in the Revocable Trust for whatever reason or purpose.
- For tax and account reporting, it uses the Grantor’s social security number and doesn’t require an EIN or a separate income tax return.
- At your death or incapacity, the successor Trustee you name is automatically able to take over administering your Revocable Trust.
- If you transfer title to all of your assets to the Revocable Trust during your life, after you die your Trustee can transfer them to beneficiaries without going through probate.
- Your Revocable Trust is supplemented with a “Pour-Over Will” that acts to pick up any assets that you have not transferred into your Revocable Trust during life, and transfers those assets, via probate, into your Revocable Trust after death.
- You can modify or revoke your Revocable Trust at any time while you’re living.
How does a Will work?
A Will includes all your beneficiaries and distribution provisions in it.
- It is created during your lifetime but does not have any legal effect until you die.
- At your death, the Personal Representative (sometimes called an “Executor”) that you name is able to have legal authority over your assets only after being appointed by the court in a probate process.
- Unlike a Revocable Trust, you do not need to transfer or retitle any assets while living to have a Will be effective.
Some considerations when choosing one over the other
Is it important to you to avoid probate?
- Many states have a “non-intervention” probate process available for most estate administrations. This process does not require the Personal Representative to ask the court for permission to manage, value, and distribute assets.
- For residents of states with “non-intervention probate” laws, with only in-state real estate, this may not be the most important factor to consider. The non-intervention probate process in and of itself isn’t cumbersome or expensive.
Do you own real estate in multiple states?
- Most states will require an additional or “ancillary” probate to transfer property owned by non-residents, which can be expensive and cause delay.
- If you only have one property out-of-state, you could create a single-purpose revocable trust to own that property to avoid probate. If you have properties in several states, you’ll get a greater benefit out of creating a Revocable Trust.
Are you planning to move to a new state soon?
- It’s common for people to contemplate relocating their residence entirely. If you have a particular location in mind, ask your attorney whether a Revocable Trust would be best considering the laws of that new state.
Are you concerned about keeping the terms of your plan private?
- A Will must be filed with the court in a probate matter, which means that it is made part of a court record that could be accessed by the public.
- An inventory of your assets and the value of those assets is not required to be filed in probate matters in some states (including Washington). Therefore, the details of where your assets will go could be made public, but the assets and values likely will not.
- Using a Revocable Trust allows you to name the trust anything you’d like, including something other than your name(s). This may maintain some level of privacy on tax assessor and county deed recorder websites.
This guide provides general information about estate planning and is not legal advice for your situation. Laws vary by state and change over time. Please talk with an attorney before acting on anything you read here.