Face-Off: Wills or Trusts

A necessary component of every estate plan is a Last Will and Testament ("Will"). When thinking about how to effective plan your estate, oftentimes the conversation of a Revocable Living Trust ("Trust") will arise with your attorney. While there a variety of different instruments that you can create to transfer your assets on your death, Wills and Trusts are the two most commonly used methods of transferring your assets: personal property, assets, and real property, on your death. Which instrument is best for you?

Wills

A Will is a legal document that a person can create that details their final instructions of how they wish their assets to be distributed upon that person's death. To be valid, a Will needs to be in writing, signed by the testator (person creating the Will) and signed by at least two competent adults who have witnessed the signing. Michigan also recognizes a special type of Will called a "holographic will," which needs to be signed by the testator by not witnessed. In created a holographic Will, the writing should be clear that the testator intended for the document to serve as their Last Will and Testament.

Wills allow an individual to transfer certain assets upon their death as well as appoint guardians and conservators for minor children. Some assets, such as life insurance or retirement accounts, do not require a Will to be transferred to the designated beneficiary. If most of your assets take this form, it may be in your best interest to proceed with a simple Will as opposed to a more complex Revocable Trust.

One significant pitfall of a Will is that it must go through the process of probate before the Will takes effect. Probate is the legal process of validating a person's Will and settling that person's estate. Probate can be a lengthy and expensive process, which is frequently cited as a core reason why standalone Will's are disfavored. Another negative of probate is that all documents become part of the public record. This reduced the privacy of a person's affairs and is something to consider when talking with your attorney.

Revocable Trusts

The second most popular method of transferring assets upon death is a Trust. A Trust is legal entity that serves as vehicle to transfer assets from the deceased to their heirs, or other beneficiaries upon death. Trusts of all kinds are governed under State law, in Michigan this statute is called the "Estates and Protected Individuals Code" or EPIC.

Generally speaking, the most commonly created trust is a revocable trust. Revocable, meaning exactly as the name implies, the document can be revoked or changed at any time during the life of the individual who created the Trust. When deciding between a Trust or a simple Will, there are some significant upsides to opting for a Trust. One of the most significant upsides is that a Trust avoids the probate process entirely. Because a Trust is a separate legal entity it does not need to be validated by a court upon your death. Avoiding probate can save time and money when a person's heirs are administering an estate.

Another benefit of a Trust is flexibility. Since the Trust is revocable up until death, the individual creating the Trust can make changes or amendments at any time. Further, because a Trust is a legal entity that does not need to be validated by a court following the creator's death, Trusts are not made public. This additional layer of privacy can be beneficial to those that wish to keep their affairs private.

Trusts also have some pitfalls. Primary, assets held by the trust must be re-titled into the name of the Trust. This process can be time consuming and may cause additional issues if you decide to revoke the Trust at a later date. Trusts also do not provide tax benefits on their own. There are also certain retirement assets that cannot be held within the Trust itself. Designating the Trust as the beneficiary may also accelerate distribution that may create adverse tax affects.

Deciding the best tools for your estate plan takes time and careful consideration. Which tool is best for you? Contact me to discuss more.