Financial Fitness

Is a Will or Trust Right for You?

Even if you have a will, it may be worth exploring whether a revocable living trust can help you and your family.

by Michelle Crouch - January 22, 2018

If you already have a will to spell out how you want your assets managed after your death, then you’re more prepared than most. Incredibly, 58% of Americans don’t have a will, according to a 2017 survey by Caring.com.

But even if you have a will and think your financial situation is pretty standard, there’s another question you should be asking: “Do I need a trust?” You might be surprised. A revocable living trust can be a useful estate-planning tool for people at all income levels, not just for the very rich, says Lisa Montano, an Estate Planning Strategist for Wells Fargo Advisors.

Knowing the basics

“It depends on your individual circumstances, but most people should at least consider a revocable living trust,” Montano says. “People think trusts are just a tool to avoid estate taxes, but they have a lot of other advantages.”

While most people know the basics of why they need a will — to keep the distribution of your estate from being tied up in court — one thing that may keep people from setting up a trust is a lack of understanding of how it works. You set up the trust while you’re alive and then transfer your property and other assets into the trust. Most people name themselves as the trustee — the person who manages the assets within the trust — but you can also choose someone else or an institution to be the trustee. If you are serving as trustee, you’ll also need to name a successor trustee to distribute your assets at your death.

A properly created living trust may be more expensive to set up than a simple will, but it gives you greater control over when and how your assets will be distributed after your death, Montano says. For example, you can set it up so that your assets will be distributed over time to your beneficiaries, in amounts that you specify.

According to a survey by Caring.com, 58% of Americans don’t have a will.

Other benefits

Beyond tax benefits, here are three other advantages of trusts:

  • Avoid probate. Probate is the process the court system uses to distribute your assets according to the terms of your will. “In many states, probate is costly and time consuming,” Montano says. “Even if you have no debt, the courts give creditors a certain amount of time to come forward and make a claim on the assets. So it can be awhile before your beneficiaries get your assets.” If you have a trust, you avoid the fees and delays associated with probate.
  • Privacy protection. Because probate is a public process, anyone can go to the courthouse and see the details of your will, Montano says. A living trust will keep the terms of your estate secret from disappointed relatives and curious friends or neighbors.
  • Built-in incapacity planning. With Americans living longer, there’s a greater chance you may become incapacitated during your lifetime. If you have a financial durable power of attorney (POA), you have already named someone to take over your affairs in case you become incapacitated, but Montano says it can be difficult for an agent named under a POA to step in and handle your financial matters for a variety of reasons. In contrast, with a revocable living trust, successor trustees seem to have an easier time having his or her powers recognized by financial institutions. However, if you do have a revocable living trust, it is still advisable to have a POA as well. A successor trustee has power only to manage trust assets.

The importance of a will

If you have a simple estate, don’t have a lot of assets, and live in a state that doesn’t have a lengthy or complicated probate process, a simple will may be all you need, Montano says, but consult with a qualified estate planning attorney first. Some questions to ask: How does the probate process work in this state? Do my assets justify the extra expense of a trust? Is my financial POA sufficient if I become incapacitated?

One final note: If you do decide to have an attorney create a revocable living trust for you instead of a will, make sure you discuss with your attorney how to put assets into the trust, otherwise those assets may still be subjected to the probate process.

Michelle Crouch writes about consumer finance, parenting, and more from her home in Charlotte, North Carolina. Her work has appeared in Reader's Digest, Parents magazine, and The New York Times.

Image by iStock

Wells Fargo Advisors does not provide tax or legal advice.