ESTATE PLANNING COSTS: LIVING TRUSTS VERSUS A WILL

coryBy Cory Howes

People often want to compare costs for goods and services, and estate planning is no different. There are two foundational documents upon which your estate plan can be based – a will and a revocable living trust – and each has varying costs. In general, it will cost more to establish a trust-based plan initially, but a will-based plan will often cost more over the long term.

It will probably cost more initially to set up a well-drafted living trust versus having a will prepared for you. However, true cost comparisons for these estate planning deliverables should include not only the expense associated with their creation, but also the costs incurred upon your incapacity or death. Also, you should consider the benefits that each choice provides, based on which is best suited for accomplishing your strategic goals.

A well-drafted revocable living trust will include incapacity planning provisions in addition to provisions dealing with your property at death, where a will only deals with what happens after you die. Properly prepared and funded living trusts will enable you and your loved ones to avoid probate and court oversight of the administration of your estate, and will keep your affairs private. With a will, your estate must go through the probate process, which will be overseen by the court, and will result in your will and estate becoming part of the public record. Since wills only take effect upon your death, they cannot, by definition, help you and your family address issues related to incapacity.

A trust-based plan also provides advantages in the form of efficiency, both during your lifetime as well as after your death. During your lifetime, a trust provides greater efficiency in three respects: (1) in keeping your assets coordinated with your plan, (2) in the event of your incapacity, and (3) in the estate administration process after your death. Whether you have a will-based plan or trust-based plan, it is essential to ensure your assets are properly coordinated with your plan. This includes titling assets properly, coordinating right of survivorship and POD/TOD provisions, and updating your beneficiary designations on retirement plans, annuities, and life insurance. With a will-based plan, any time your life changes and your will is updated, it is highly likely that you will need to update beneficiary designations or other asset coordination provisions. With a trust-based plan, it is much more likely that you can simply update the trust document without needing to also update other asset coordination issues.

The incapacity provisions of a trust-based plan also make incapacity more efficient. In many cases, a properly funded trust-based plan will avoid the need for a guardianship proceeding, thus avoiding a time consuming, often expensive, and public court process. This can save money, but it will also save your family in time and stress as well. The incapacity provisions in a trust will often include personalized instructions for your support and the support of your family during your incapacity. These personal instructions are normally not included in a will-based plan.

After your death, the “substantive” administration tasks are mostly the same for a will and trust. The decedent’s assets must be gathered and managed during the administration process, creditors and debts must be identified and paid, taxes must be addressed, and ultimately the decedent’s property must be distributed according to the terms of the will or trust. With a trust-based plan, these tasks can be handled by the successor trustee in an efficient manner. With a will-based plan, the executor must complete extra work in the form of filing probate documents with the court, seeking approval for many of the involved tasks, and meeting the court’s deadlines. In addition, assets that go through probate are subject to a probate tax, where there is no probate tax for assets held in trust.

There are many other differences between wills and living trusts. You should get all of the facts associated with the costs and benefits of each, as well as advice from an experienced estate planning attorney about your specific circumstances and goals, so you can make an informed decision about what is best for you and your family. If you have questions, please do not hesitate to email me at the Forrest Firm today.