I am often asked about the difference between wills and revocable trusts. It’s one of the most common estate planning questions I hear, especially here on the North Fork, where many families are thinking about how to pass along homes, savings or family businesses. The answer is simpler than you might think. Wills and revocable trusts basically do the same thing: They are documents that give your assets to your beneficiaries upon your death. Both can be revoked and changed at your discretion. In fact, a revocable trust is also known as a “will substitute.”
Under a will, you can only give away assets that you own in your name with no beneficiary designation. These are called “probate assets.” Through a will, you cannot give away assets that are held jointly with right of survivorship or that have a designated beneficiary, as these are “non-probate assets.” For example, the joint account you have with your spouse at Chase Bank in Mattituck cannot be given away in your will or revocable trust, as it passes automatically to your spouse upon your death. The same applies to your IRA, 401(k) and other retirement accounts on which you’ve named a beneficiary.
A revocable trust (sometimes called a “living trust”) is a written agreement between you, as grantor, and you (and/or another person) as trustee. It directs the trustee to hold the assets you put in the trust and how to distribute them upon your death. During your life, you may revoke or amend your trust, and you can put in and take out assets whenever you want. The trust can use your Social Security number, with its income reported on your personal income tax return. You retain full control over the trust assets, which will be included in your estate for estate tax purposes at your death. Contrary to the implication made in mailings you may have received, a revocable trust will not save you more in estate taxes than a will.
So, why use a revocable trust instead of just a will? For many families, it comes down to one thing: avoiding probate — particularly when the main asset is a home or other property that needs to be managed or transferred without delay. A will has no legal effect until it is admitted to probate, a process in which the court determines the will is valid and appoints the executor, who can then take control of the probate assets. If you live on the North Fork, the Suffolk County Surrogate’s Court in Riverhead will handle the probate of your will. Unfortunately, the probate process can be lengthy, sometimes lasting months or even years, depending on the circumstances. Revocable trusts need not be probated, so the trustee has full control over the trust assets immediately upon your death.
Circumstances that could delay probate include dying without a spouse or children, having minor or disabled children, or having difficult heirs. Even if your will names beneficiaries, New York law requires that people who would receive your assets if you had no will be notified of the probate proceeding. These people are called “distributees,” and, if you have no living close relatives, they can include distant relatives you’ve never met. The court may require a genealogist to be hired to track down your living distributees, which can be time-consuming and costly. If you are in this situation, it is strongly recommended that you consider using a revocable trust and transfer all your assets into it.
In practice, this often comes up when someone owns property in their sole name, has no immediate family nearby, or wants to make sure a house or other asset can be handled quickly without court involvement.
If you die leaving a spouse and minor children, those minors are also distributees, and the court will appoint a lawyer to represent the interests of your minor children in the probate proceeding. That lawyer will review the will and the circumstances surrounding the execution of the will to make sure the provisions for the minors were intended by you, and submit a written report to the court, recommending probate or not. This procedure can also delay the probate process.
If your distributees are difficult or disgruntled because they didn’t like the terms of your will, they can file objections in court to the probate of your will, delaying the probate process. In hotly contested probate proceedings, the delay can last years.
When using revocable trusts, it is important also to have a “pour-over” will, which directs the executor to transfer (pour over) all of your probate assets to your revocable trust upon your death for distribution in accordance with the trust’s terms. This way, any assets you may have forgotten to transfer to the trust are disposed of according to your wishes.
Using a will alone or a pour-over will and revocable trust combined depends on your circumstances. For some, a simple will is enough. For others — particularly where real estate or more complex family situations are involved — a trust may make the administration much smoother. Without a legal document directing the distribution of your assets upon your death, New York State law will determine who gets what.
Source: The Suffolk Times
