Trusts for Some – Wills for Others

Suze Orman and Dave Ramsey often talk about the advantages of using a Revocable Living Trust instead of a standard Last Will and Testament. For many a Trust is the best way to go, if it is done correctly, and it truly fits your needs.

First, what is a Revocable Living Trust? A Trust allows you to take your assets out of your name and place them into a vehicle that allows you to keep control of the assets while eliminating the need to probate. Remember, the only assets that have to be probated are the assets in your name upon your passing. Another key advantage of a Trust, as well as key difference of a Will is the ability to control distributions.

When you leave an asset (money or possession) to someone in a Will you cannot dictate how that asset is to be used or how it is to be spent. For example: in a Trust you can leave $10,000 to your daughter but stipulate that she only receives $1,000 per year or that she receives the entire balance as long as she graduates from college. In a Will your daughter gets the full $10,000 after the Will is probated AND she can spend it anyway she wants. Now the later example works perfectly for responsible beneficiaries but if the beneficiary has a history of being irresponsible, then a Trust is the better option.

However, all the benefits of a Trust disappear if it is never funded. An unfunded Trust means Probate, which could mean expense, time, and possibly contention for your beneficiaries. Think of it like this – you’ve organized the perfect dinner party. Planned the menu, set the table, hired a chef and invited the guests. The chef opens the fridge and finds nothing but empty shelves. He can’t follow the plan as he doesn’t have the ingredients.

If you fail to fund your Trust you’ve paid good money to put a plan together that can’t be used until after a long Probate process.

However, for some people a Trust really isn’t necessary. You have a simple estate with a few responsible beneficiaries. You don’t own any property other than your home and your only other assets are a Checking Account, a small 401K/IRA and a Life insurance policy. These people can set up an estate plan to avoid probate using a few strategic tools.

First, meet with an Attorney who specializes in Estate Planning and get a Will put in place, just in case (*this applies to Trusts as well–see below). The Attorney can also create a Lady Bird deed that allows you to keep control and ownership of your home until you pass. Then the home can be transferred to your beneficiaries outside of Probate.  Next, meet with an experienced Financial Advisor and make sure you have beneficiary designations on all of your assets. Finally, talk to your bank and assign a POD “payable on death” beneficiary.

*Why do you still need a Will? A good Attorney always plans for the worst and what if you miss placing something in your Trust.  Or, you could inherit a piece of property or other asset and you don’t know about, now that property/will need to be probated and distributed to your beneficiaries. This is where the State steps in and decides how to distribute everything but they follow their own, complicated set of rules, these rules are called Intestate succession.

Remember: Failure to Plan is Planning to Fail. Take the time to put a customized plan together and meet with a Professional to make sure the plan you put together actually meets your needs.

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