Wills & Trusts FAQs

What are the advantages and disadvantages of having a trust instead of a will?

Trusts enable the grantor (the person creating and funding the trust) to determine who receives the money, when they receive it, and what conditions must be met. The pros and cons of trusts depend on whether it is a living trust or a testamentary trust. A living trust is set up during the grantor's life, while a testamentary trust takes effect upon the grantor's death. A living trust can be either revocable (grantor has power to revest title in himself/herself) or irrevocable (grantor did not reserve the power to revoke the trust). Note that a revocable trust generally becomes irrevocable upon the death of the grantor.

The most-touted advantage of a living trust is a substantial tax benefit to the grantor. Assets placed in an irrevocable living trust are not attributable to the grantor, although the trust itself may be taxed. Estate taxes also may be avoided.

Revocable Living Trusts

Revocable living trusts are sometimes used to help eliminate the issue that arises when certain entities (such as title insurance companies in some states) will only recognize Durable Powers of Attorney for a limited period of time after they are executed. Other advantages cover both revocable and irrevocable living trusts. If a living trust covers all of the grantor's assets, then he or she may not even need a will. Many people wish to spare their relatives from going through probate, and living trust assets are not subject to probate. Because there is no probate, survivors do not have to reveal the extent of the living trust's assets through a public filing as happens with probate. If the grantor holds real estate in more than one state, a living trust covering that property may allow survivors to avoid probate in those states. Aside from the advantages for the survivors, a living trust can help a grantor manage his or her financial affairs because a trustee takes over the administration of the trust's assets. Some people are particularly concerned about how their finances will be managed if they should fall ill. A living trust may provide peace of mind because a trustee can continue to manage the trust's funds in the event the grantor becomes mentally or physically incapacitated.

In some cases, a disadvantage of a living trust is that this trust becomes effective upon creation instead of at the grantor's death. Although a revocable living trust remains terminable at the will of the grantor, while the trust is in effect, the terms of the trust control.

The major advantage of a testamentary trust is that the grantor retains control over his or her assets. Because a testamentary trust becomes effective only upon the grantor's death, the grantor may make changes to its terms any time before death. For many people, retaining control of their property is an important goal that testamentary trusts help them achieve. Retaining control can have its disadvantages, though. If the grantor becomes incapacitated prior to death, the trustee cannot take charge of the trust assets in order to manage the grantor's finances during that time. A guardianship may be required for such incapacitated grantors. Another drawback is that survivors must probate the testamentary trust.

How can a person change a will?

If a will is valid, it is effective until it is changed, revoked, destroyed, or invalidated by the writing of a new will. Changes or additions to an otherwise acceptable will can be most easily accomplished by adding a codicil. A codicil is a document amending the original will, with equally binding effect. Therefore, a codicil must be executed in compliance with applicable law, using the same formality as the original will. Wills cannot be changed by simply crossing out existing language or adding new provisions, because those changes do not comply with the formal requirements of will execution.

Changes to an individual's personal property may prompt a change to an existing will. To avoid frequent changes as property is acquired, a will can specify that personal property (property other than money and real estate) is to be distributed in accordance with instructions provided in a separate document. Many states provide for such a document, which can be updated as often as needed without requiring a formal codicil or revised will. A personal property instruction should be kept with the will to which it relates, and should describe each item in detail to avoid later confusion or hard feelings.

An outdated will may not achieve its original goals because its underlying assumptions have changed. Additionally, changes in probate and tax law may change the effectiveness of certain provisions. If a will is based on outmoded circumstances, for example if a chosen devisee has died or has alienated the testator, the probate period may be extended as the court determines how to construe the old provisions. Wills should be reviewed at least every two years, as well as upon major life changes such as births, deaths, marriages or divorces, and major shifts in a testator's property. Because state law governs wills, if a testator moves to another state, the will should be reviewed for compliance with the new state's laws.

As long as the testator is mentally competent, his or her will can be revoked entirely without replacement by a new document. A testator can revoke a will by intentionally destroying, obliterating, burning, or tearing the will. If the will was executed in multiple originals, or if additional copies exist, those should be treated in the same fashion. If a testator wants to minimize estate taxes and probate, he or she should make validly executed changes to a will or replace the will with a subsequent will, rather than completely revoking the will. If undertaken, however, the testator should have the revocation witnessed and recorded to avoid future contentions that the will is still valid, but has been lost.

What is probate and how does it work?

When an individual dies owning property in his or her name, that property generally must go through probate. Probate is a legal procedure that establishes ownership of property in others. The probate system is designed to ensure the validity of a will, to give notice to all possible claimants of property and to resolve ownership disputes and rights. Probate courts also distribute property not covered by a will (intestate estates) according to legal defaults. Some property does not require probate to change hands: joint tenancy property and contractual arrangements such as insurance policies and retirement accounts generally go directly to the surviving joint tenant or named beneficiary without probate oversight. Probate also is not required for assets held in trust.

The probate court first establishes whether the deceased left a valid will. If so, the probate process guides the division of property in accordance with the will's provisions. If the estate is intestate or if a will is found to be invalid, the probate division applies state laws to divide up the estate. The probate court signs off on the final accounting of the distribution, thereby finalizing the transfers of ownership.

There are two levels of probate:

Informal probate covers estates that require no court supervision or adjudication due to their clear, undisputed nature and simplicity. This procedure allows the personal representative to accept full responsibility for promptly, completely, and legally probating the estate with only minimal court oversight. Typically, the personal representative can act more quickly to divide the property under this process, with the probate court giving final approval once the estate is fully distributed. Personal representatives may apply for informal probate, but should be aware of the possible legal liability for mistakes that their acceptance of the procedure involves.

Formal probate applies to more complex or contested estates, and involves court supervision of distribution. The probate court supervises the personal representative on each legal step he or she takes to administer the estate, adding substantial time to the process. The personal representative may post a bond to guarantee his or her performance and to protect the estate's creditors. The court may need to hear and resolve conflicting claims to the estate assets, or even find heirs when they are not apparent. The court scrutinizes each distribution. While this procedure takes far more time, it is indispensable when disputes and complex issues are involved.

Most personal representatives hire a lawyer to help them with at least some of their duties, even in informal probates. While making a will does not prevent the need for probate, a carefully drafted will minimizes the time a personal representative spends in court and speeds up the distribution of property to survivors.

What are some of the tax consequences of estate planning?

Many state and federal tax regulations impact estate planning, but a carefully crafted estate plan can reduce the tax burden on an estate and survivors. Both state and federal rules and regulations are extremely complex, and the advice of an estate planning attorney to maximize tax savings is highly recommended, particularly if an estate is likely to be substantial.

Some states have inheritance taxes that devisees to a will must pay; recipients under a will or trust also may face state and federal income tax consequences. In 2001 Congress enacted a law that raises the exemption amount for federal estate taxes with the intent of eliminating all estate taxes by the year 2010. Until then, if an Estate's worth exceeds the exemption amount, which begins at $1 million in 2002 and rises progressively to $3.5 million in 2009, it must file federal tax returns, and state tax returns in most states, and may be subject to federal and state estate taxes. The federal gift tax augments estate and inheritance taxes by regulating gifts to individuals while living; gifts exceeding $11,000 per recipient per year are taxable. This provision prevents people from giving away their assets in order to avoid estate or inheritance tax. For example, in 2006, the total exemption is $2 million dollars. If your estate is worth $3.5 million, the first $2 million of that money is not subject to federal estate tax.

Some gifts from a will do not require tax payments. Current federal tax laws allow testators to leave up to $1,000,000 tax-free to one or more individuals other than a surviving spouse. The surviving spouse may receive an unlimited amount without taxes; however, if the estate is quite large and the entire estate is left to the surviving spouse, that surviving spouse may lose the option of subsequently leaving the same amount to his or her chosen devisees without taxes. Estate planning specialists can assist people with potentially large estates to create trusts that may allow transfers without any or limited tax consequences.

  • None of these taxes form a substantial source of revenue for state or federal government. Most estates are not affected substantially by the various tax rules because they do not exceed taxable minimums.

Under what circumstances should I change my will?

  • Marriage
  • Death of Spouse
  • Divorce
  • Birth of a Child
  • Birth of a Grandchild
  • Purchase of real estate
  • Changes in probate law
  • Changes in estate tax law

If I have a will, can I avoid probate altogether?

No, when an individual dies owning property in his or her name, that property generally must go through probate. The probate system is designed to ensure the validity of a will, give notice to all possible claimants of property, resolve ownership disputes and rights, and distribute property not covered by a will (intestate estates) according to legal defaults. Wills simply aid the probate process.

Most personal representatives hire a lawyer to help them with at least some of their duties, even in informal probates.

Does all the property of a decedent have to go through probate?

No, some property does not require probate to change hands: joint tenancy property and contractual arrangements such as insurance policies and retirement accounts generally go directly to the surviving joint tenant or named beneficiary without probate oversight. Probate also is not required for assets held in trust.

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