The recent deaths of actor Gene Hackman and his wife Betsy Arakawa highlighted the differences between the two primary tools for passing on the bulk of one’s wealth.
The two tools are the will and the revocable living trust, also known as a living trust.
Anyone with a living trust also should have a will to control assets and issues outside the scope of the living trust. The issue is which tool should control most of the assets and be the foundation of the estate plan. The best choice for one person might not be optimum for another.
Most of Hackman’s assets apparently were held in a living trust. He also had a will that bequeathed the assets owned in his name to the living trust.
Arakawa’s primary tool apparently was a will in which she left her estate to Hackman. But the will had a simultaneous death clause that provided if she and Hackman died within 90 days of each other her estate would go to a charitable trust.
The Hackman/Arakawa experience shows the advantages and disadvantages of each tool.
A major difference is that property subject to a will goes through probate while property owned by a living trust avoids probate.
The major disadvantages of probate are its cost and delay.
A will is filed with the probate court (or local equivalent). An executor or personal representative is appointed by the court, usually following the recommendation in the will, to manage the estate.
The executor prepares an inventory of the estate’s assets and liabilities and files it with the court along with a plan to pay the debt and distribute the assets in accordance with the terms of the will.
All this is reviewed by the court. It’s also available to the public, and people have an opportunity to challenge the will or the executor’s plan. Assets can’t be distributed until the court approves.
The estate usually pays fees to the court as well as to the executor and any professionals who assist the executor. In some states, probate can be expensive and time-consuming for even small estates.
Probate is not lengthy and expensive everywhere. Some states have streamlined, less expensive probate processes, especially for modest estates. They reserve the traditional probate process for only the most valuable estates. Check with your estate planner about the local process and cost.
Lack of privacy is another disadvantage of probate. After it is filed with the court, a will is open to the public.
In the Hackman/Arakawa matter, little is known about the extent of Hackman’s assets and how they will be distributed because a living will usually isn’t filed with a court.
There’s speculation that Hackman disinherited his children, because they weren’t mentioned in the will. But it’s likely significant assets will be distributed to them by the living trust, and the children might have received gifts during Hackman’s lifetime.
The details of Arakawa’s will, however, are available to the public, and the inventory of her assets and liabilities will be.
The wills of many celebrities are available online. Bing Crosby is said to have revised his estate plan by shifting most of his assets to living trusts after his first wife died and the details of her will were made public.
Many celebrities and wealthy people hold the bulk of their assets in trusts at least partly to avoid publicity.
Yet, public scrutiny of a will and probate can be an advantage.
Probate provides checks and balances. In addition to being reviewed by the court, the asset inventory and details of the estate distribution plan are available to heirs and potential heirs.
Public scrutiny can identify missing assets or changes in the will.
A will is more likely to be challenged than a trust. Trusts rarely are challenged, partly because their details aren’t public. Also, the rules for challenging wills are well-established, while there is less law about challenges to trusts.
Some people believe a will is easier, because you don’t have to be sure the trust has legal title to assets. Anything you own at your passing automatically is subject to the will.
The living trust, on the other hand, must have legal title to assets to provide its benefits. Deeds to real estate must be reissued in the trust’s name. Titles to vehicles and some other assets must be reissued. Names on financial accounts might have to be changed.
Many people have trusts drafted but then don’t transfer legal title of their property to the trusts. So, the trusts have no value.
Cost might be a consideration for some. A will usually is less expensive to have prepared than a trust.
Some attorneys believe trusts are less likely to be updated. They say people know when a will needs to be updated but often incorrectly believe a trust doesn’t need to be revisited.
A living trust at least theoretically provides for a smoother transition of management and ownership of property.
You initially serve as trustee and manage the property. In a married couple, the spouses usually serve as the initial co-trustees.
The trust agreement should name a successor trustee, or trustees, who automatically take over management after the original trustee becomes disabled or passes away. The successor doesn’t need court approval to manage and distribute the trust property.
When assets are owned in your name and you become unable to manage them, the agent under your power of attorney presents the document to financial institutions for them to accept before your assets can be managed. If there’s no power of attorney or financial institutions won’t accept it, the courts become involved.
But there’s no guarantee a trustee transition will be smooth.
Financial institutions and others who deal with the trust must decide to accept the authority of a successor trustee and many require a high level of substantiation before recognizing the successor trustee.
The successor trustee probably won’t have to go to court, but completing the transition could take some time and expense. It is best to be sure everyone who deals with you as trustee is familiar with your named successor and your plans.
With a trust, you have to find one or more people who are able and willing to serve as successor trustees. They must be willing to step forward and assert their position when you appear to be disabled, even if you resist.
But you’ll have similar issues with a will, because you must select someone to act as your executor and one or more agents to act for you under a power of attorney.
Work with your estate planner to determine whether a will or living trust is the best fit as the primary succession tool in your estate plan. Consider the composition of your estate and your goals for cost, efficiency, privacy, and more.
Read the full article here
