Trust vs. Last Will: The Age Old Debate
And why probate is not a dirty word!
By: Bonnie Klein Rhoden, Esquire
In Florida there are differences between a TRUST and a WILL. When deciding which one is right for you (or maybe both) you should know what a trust does and what a will does for you. There are pros and cons to each choice. In this article we discuss several issues that you should consider as you decide a trust or a will.
Initial phone consultations and planning document reviews are always complimentary with Attorney Bonnie Rhoden.
Does having a last will mean “no probate”?
The simple answer is NO, a last will does not help you avoid probate. Your estate may require probate if you have a will or if you do not. It may also require probate if you have no will but do have a trust or with a trust and a will.
Planning Your Estate Should Begin In Your 30’s; Earlier If You Have Children.
I have spoken to people throughout Brevard’s many cities who believed a will creates the easiest path for their heirs to receive assets after death. This is not necessarily true but having a will is still very important and it can be the best choice to pass assets for your situation. Probate is not a dirty word. In years past probate was cumbersome and intrusive and could take years. Now we find that probate is a dependable process by which the court oversees the distribution of your assets to your heirs as set out in your will (or according to Florida law if you have no will). Probate usually requires an attorney and it can take as little as three or four months or as long as several years. Many factors influence the length of time needed to complete probate. Proper planning with your attorney can maximize the efficiency of the probate process if your plan will require it.
It is imperative that you create a proper will and include all the information needed by the court, by your personal representative, and by your heirs. A poorly drafted will or a standard form from online services or the office supply store will not provide you the document you need to ensure your wishes are carried out and in the event of a disagreement you need a professionally drafted will to be enforceable. Most people do not want to see a disagreement amongst heirs turn into a legal attack against a will. Unfortunately attacks against a will take place after the drafter has passed away so there is no way to ask, “What did you mean?” or “What does the language in section 4 of your will mean?” The language in the will should be and in most cases of disagreements the Judge has to decide what the decedent meant.
TIP: Even if you use a trust you still need a last will and testament.
Privacy Concerns With a Will and a Trust
When you choose to use a will without a trust Florida Statutes require your will to be filed with the Clerk of Court in the public record shortly after your death. This is not private and your will may contain some very personal information about your funeral desires, your assets and who is being gifted which assets and the amount each heir will receive.
TIP: While a trust document is kept private in Florida the law does require a Notice of Trust to be filed with the court giving basic information about the trust. Your instructions and specific details in the trust document usually remain private. This issue alone may not be enough to drive your decision to create a trust or not but it is an important consideration.
Assets Passing Automatically
If an asset is held in the name of more than one person it is possible that asset will pass automatically, or by operation of law, to the other owner(s) upon the death of an owner. This is commonly found with deeds to real estate and especially with married couples and their home.
TIP: If your spouse predeceases you, your home will pass to you if you are joint owners with right of survivorship. However you need to take action after their death to update your planning documents and perhaps consider a trust, an enhanced life estate deed, or other planning tool.
Some spouses hold all assets as joint owners. This means there are two names on the bank accounts, the house, the car(s), the investment accounts. Joint assets pass to the joint owner immediately upon death of one spouse. This can avoid probate for all jointly held assets. (Remember that retirement accounts, like IRA or 401k accounts, must be held in only one name and therefore would normally be subject to probate.) Using a Pay on Death (POD) or Transfer on Death (TOD) or beneficiary designation is another way you can transfer assets upon your death without probate; this is especially applicable to bank accounts and individually held IRA accounts.
Adding Children or Family to Your Assets
What if you are not married or your spouse has predeceased you? Many people want to put a child on their bank accounts or even on the deed to their house. This is extremely problematic and rarely is it recommended. Some clients have added a child to their bank accounts while both spouses are living. There are a myriad of problems that can arise from such transfers making them a less desirable choice:
Resist Advice from Non-Lawyers to Add Children to Your Assets! Just say no!
- Adding a child or another person to your bank account creates a “gift” of the value of the account to that new joint owner. This can be a taxable event depending upon the amount in the account. The person giving the gift is customarily the taxed party. This is a highly undesirable effect of a seemingly simple action intended only to “make things easier.” Consider instead a Power of Attorney or read below about transfer on death options for financial accounts.
- If you add another person to your bank accounts that money may not be available for your care should it be needed. There can be disagreements about who the money belongs to and I have seen court battles by children against a parent because the money was withdrawn to use for the parent’s care. These conflicts are not only long and expensive but they are detrimental to family relationships.
- If a child or family member is already on your account and is sued for some reason (such as a broken lease, a car accident, unpaid debts, or a wrongful act) the money in your account is subject to the judgment and can be taken from you due to that persons actions even if unintentional.
- Adding one child or family member to the account when your intention is to leave the money to all your children or others is a bad idea. The joint owner owns all of the account and is under no obligation to share what is there with siblings or others. Also, if the child does share the portions you desired with others that child will be subject to the gift tax rules of the IRS.
- A minor who is made a joint owner of an account may be subject to a statutorily required guardianship if it contains over the allowable amount that a minor may receive under Florida law.
TIP: Do not add family or friends to your accounts, deeds, or titles without reviewing the potential effects with your tax preparer or tax advisor and your lawyer.
Initial phone consultations or planning document reviews are always complimentary with Attorney Bonnie Rhoden.
What is a Revocable Living Trust?
This is a commonly used type of trust and it is exactly what the name describes. It is revocable meaning you can add, remove, sell and gift assets from the trust during your lifetime. It is living meaning you create it during your lifetime. And it is a trust, which is an entity of sorts described by a trust document through which you can own assets in the name of the trust, control the use of the assets, and enjoy a higher level of privacy upon your death.
Such a trust can be changed or updated, just like a will, as often as you need or desire. Creating the trust document initially is the hard work but then transferring assets into the trust is all that is required to have a valid trust. You can hold your homestead property (with special wording in the trust), a boat, rental property, personal effects, even pets. Any assets that are not placed into the trust will require probate to pass according to your will.
Creating a revocable trust is usually a higher initial cost than a Last Will and Testament but the cost to your heirs upon your death can be greatly reduced if your overall plan successfully avoids the need for probate.
TIP: Having a revocable trust does not eliminate the need for a last will.
The topic of irrevocable trusts requires in depth explanation however the basics are easy to understand. This type of trust is another way in which you can hold assets. Creating the initial trust document is the hard work but there is also a lot of ongoing responsibility with an irrevocable trust. That ongoing work can be worth the effort as there are many benefits but the decision to use an irrevocable trust must be taken seriously and deliberately.
Reasons to create an irrevocable trust include: privacy for your lifetime and after death, control in passing your assets to the people, charities, or other groups that you wish to receive them in the timeframe you dictate, tax benefits to you and to the recipients, and preservation of assets for future generations.
Using an irrevocable trust means you must turn over ownership and control of the assets you gift into the trust to another person or company – the Trustee. Family members may serve as trustees or co-trustees. Professional trustees are also available for a fee or you can use a trust department at a bank or a trust corporation. There are fees associated with maintaining a trust such as paying the trustee, maintaining financial accounts, and legal fees.
TIP: When you transfer assets to an irrevocable trust you cannot decide to sell, gift, devise or remove the assets. The trustee is responsible for the assets and must follow the instructions provided in the trust document. Many people do not prefer irrevocable trusts due to this loss of control over assets.
How a Trust Can Help You Plan for Incapacity
Part of the process to create a revocable or an irrevocable trust is the appointment or naming of a trustee. With revocable trusts the giftor/grantor of the property to the trust is most often the initial trustee. For example husband and wife create a trust and gift their home, bank accounts, and investment accounts into the trust. H/W are initial co-trustees and their oldest child is named as successor trustee upon H/W incapacity or death. Irrevocable trusts require an initial trustee other than the giftor or settlor.
When incapacity hits it can be temporary or long term and it can come about slowly or it can hit in the blink of an eye. Your trust can provide the power necessary for the successor trustee to step in and manage the accounts, pay bills, deal with insurance payments, and even the sale of property or assets. What the trust creator wishes to be considered incapacity is typically defined in the trust document itself. Incapacity definitions should require a written statement from two medical professionals saying they have evaluated capacity and you are not able to handle your own affairs. The language used in the trust can allow the successor trustee to take over without court interference (such as needing a guardianship). If the court gets involved it may determine your incapacity requires a guardian be appointed to oversee your affairs. A well-drafted trust can minimize or eliminate this possibility.
TIP: A well written power of attorney document can also allow the person you designated to make decisions and take action on your behalf without the need for a trust.
Will versus Revocable Living Trust
If you use a revocable living trust you also need a will – a special type of will known as a “pour over” will. This will ensures all of your assets (or a portion of them) are poured over into your trust at the time of your death. Your will is very simple in this case and your trust, which is kept private, includes all the details of distribution of your assets to your heirs. This special type of will also prevents any assets that you may have not gifted to your trust during your life to be placed into the trust automatically upon your death.
A will that must go through probate becomes a public document. Probate is also a court monitored process. Administering a trust does not usually require multiple court pleadings to be filed. In probate an inventory of your assets must be filed with the court and a final accounting of all the activities during probate is also usually required by the court. With a trust the acting trustee is not required to file such documents with the court.
If you have a trust and own real property in another state your estate can act through an attorney in the state where that property is located and may be able to transfer the property into your trust with a deed. This may make the process known as “ancillary probate” unnecessary. In this case probate is avoided in Florida and in the state where the other property is located. You can and likely should transfer all your real property into a trust (some people have more than one trust) but speak to your attorney and your tax advisor for the pros and cons of holding property in a trust.
TIP: If you leave property or other valuable assets to a minor using your revocable trust the trustee handles the assets until the minor reaches a pre-determined age as defined in your trust document. If a minor receives a gift or devise directly from your will a guardianship may be required by Florida law to manage the asset with court oversight.
In Florida you can identify guardians for your minor children in your will but you cannot do that in a trust. The trustee can handle the assets in your trust for the benefit of your minor child(ren) while the guardian raises the child(ren).
TIP: You may also use a document known as a Pre-Need Guardian to identify your desired guardian in the case of your incapacity and this is commonly done along with a power of attorney. A different combination of documents is necessary in the event of your death.
A revocable living trust document will most assuredly be more complex than a will document. The trust is the instruction book for handling the assets contained in the trust so it must be thorough and consider all possibilities. Changes can be made during the giftor or settlor’s lifetime but upon their death the revocable trust becomes irrevocable.
A revocable living trust will not protect the assets it holds from creditors during your lifetime. A will does not either. Neither will reduce estate tax for the average person but their may be tax benefits to those with very large estates.
What To Do Now?
This article has provided you with a brief overview about wills and trusts in the State of Florida. While it may have cleared up some questions for you it likely created at least one more question, “What do I do now?” Deciding whether to use a trust is personal and unique to you – the decision should be made after careful consideration of your goals during life and after death, your tax situation, your family, your assets, and your desire to maintain full control over assets. An attorney can help you walk through the process of deciding to use a trust or not and a good attorney will provide you a consultation during which you can talk through the questions and options about a trust and other planning documents that you can use.
Call our office to schedule a consultation with Attorney Bonnie Klein Rhoden to discuss your planning needs. (321) 549-3162.
Attorney Bonnie Klein Rhoden first moved to Brevard County with her family in 1977. After college and living in the Orlando area she has been back in this area for over thirteen years. Her parents still live locally and she shares a close relationship with her extended family. Bonnie practices law in the areas of estate planning, incapacity planning, probate, elder issues, guardianships, family law, real estate and other matters. She is well known for spending all the time necessary to help her clients understand their planning needs and options.