Estate Planning Tools

The will is the most basic part of every estate plan. By definition, it is a legal declaration of a person's wishes regarding the disposal and distribution of his or her estate after death. The will is the legal document, drafted during your lifetime, that addresses numerous issues:

• Final testimony of your Christian faith
• Property and asset distribution
• Naming a personal representative/executor  
• Naming a legal guardian for minors
• Reducing estate tax liability

In the absence of a will, the state will resort to a formula. A judge will name an executor, bond may have to be posted, the court will name a guardian for any minors, and a formula will determine asset and property distribution.

Every state has different laws and regulations when it comes to the execution and validity of a will, and they are often strict. Be sure to retain a competent lawyer who is familiar with the laws of your state of residence to draft your will.

 

The revocable living trust (RLT) contains language to distribute assets at death, just like a will. Here, however, you set up a trust during your lifetime and transfer essentially all of your assets into the trust. These assets are then managed and controlled by you. Just like a will, an RLT can contain language to set up other trusts, should these be desired. The RLT has many advantages over a will: most notable it allows you to avoid probate.

The RLT also has the advantage of being private: none of it is subject to public record. In addition, it is much harder to contest successfully. The disadvantage of RLTs is that they are more expensive to draft and more difficult to maintain than wills. Since the RLT is probably the lesser-known option, we include below a brief explanation of how the trust would work for a married couple.

Essentially, the revocable living trust works as follows:

• An attorney prepares the trust. It contains language to direct the disbursement of funds at the death of the second spouse, exactly as you desire.
• Upon creation of the trust, ownership of all of your assets, except qualified retirement plans and life insurance policies, is generally transferred to the trust.
• A simple will is prepared for both spouses, which at death merely transfers any assets to the trust that were previously overlooked.
• If estate taxes are a concern, the revocable living trust can also contain language to create a second trust called a bypass trust. This trust would not be funded initially, but could be funded at the death of the first spouse to reduce future estate taxes.

Both spouses would serve as trustees of the revocable living trust during their lifetimes, managing the estate. At the death of the first spouse, the surviving spouse would serve as sole trustee of the surviving revocable living trust, and could also serve as personal representative of the estate under the will.

 

In deciding whether to use a will or a revocable living trust as the primary instrument of your estate plan, it is important to assess the importance you place on the various advantages of the revocable living trust. For most people, the overriding factor in this determination is the importance of avoiding probate. Only a specific review of your assets and the rules in your state can determine the likely probate costs for your estate. The costs of probate varies significantly from state to state; in many states, the costs are quite limited, but in others, they can be substantial.

As a general rule, our experience is that individuals residing in states with low probate costs typically opt for wills in their estate plans. Conversely, individuals residing in states where probate costs are high tend to use revocable living trusts. To reduce the cost of probate, many states have adopted the Uniform Probate Code. To view a current list of these states, (click here).