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Why an Estate Plan Needs Both Wills and Revocable Trusts
Two of the best-known estate planning documents are Wills and Revocable Trusts. However, there is confusion about which is “best.” These documents serve different purposes; the important thing is to be sure that they work together to achieve the overall goals of the estate plan. In fact, at Holland Law Offices, we almost never draft an Estate Plan without both.
What is a Will Used For?
Most people understand a Will is used to distribute a decedent’s assets after death. However, the Will serves several other functions: it names an Executor, the person in charge of managing the Estate. This is a significant role, requiring the ability to handle finances, engage with many government agencies (Social Security, IRS, Veterans Administration, etc.), navigate family dynamics and distribute estate assets.
If there is no Will, the court will name an Executor, known in that context as an Administrator, who may not be a family member. Assets are then distributed according to the state’s laws, instead of as the decedent intended.
For parents with minor children, the last will nominates a guardian to raise minor children in the event of both parent’s death. If there is no Will, or if the Will fails to name a guardian, the court will decide who should raise the child or children. In many cases, the family may not have an opportunity to be involved in these decisions.
After the individual’s death, the Will is submitted to the court in a process known as probate. This is a legal proceeding where the Will is validated, and the court approves the Executor. If the Will has not been prepared according to the laws of the state where the decedent lived, it may be ruled invalid, and then the court proceeds as if there was no Will.
How Does a Revocable Trust Work?
Unlike Wills, Revocable Trusts do not go through the probate process, which is one of their many advantages. The trust owns assets titled in the trust name, and such assets are not part of the estate subject to probate. The language of the trust is used to direct the person who manages the trust—the trustee—to do exactly what the grantor—the person who establishes the estate—wants with the assets owned by the trust.
Revocable Trusts can be used to distribute funds to beneficiaries based on achieving certain life milestones, like graduating from college or buying a home. Trusts are also used to reward certain behaviors, like maintaining sobriety or being employed for a certain length of time. Trusts may not impose illegal restrictions on beneficiaries. However, they can be used to encourage productive lifestyles. Spendthrift trusts are designed to limit the amount of assets for beneficiaries likely to use their inheritance unwisely. In Connecticut, when Trusts are created under a Revocable Trust, they are not subject to the jurisdiction of the probate court. This can save thousands of dollars in accounting and legal fees.
Revocable Trusts are also used in blended families to ensure that biological children are not unwittingly disinherited. There are trusts to provide support for a second spouse, for instance, where the balance of the assets in the trust is distributed to the biological children after the first parent dies.
Wills and Revocable Trusts are ideally created to complement each other, passing wealth onto the next generation, minimizing tax liabilities, avoiding delays in asset distribution and ensuring that the decedent’s wishes are followed.
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