An estate plan is a legal arrangement that provides detailed instructions about the management, investment, transfer, and/or utilization of someone’s property during their lifetime or after their death. An estate planning attorney will (…should) tailor each person’s estate plan to their individual life. A person’s family and financial dynamics will have significant influence in an estate planning attorney’s analysis used to create their estate plan.
What is a Last Will and Testament?
A Last Will and Testament is the formal name for what we commonly know as a “Will”. A will is a legal document that describes how your assets and property are to be distributed after you die. A will can also assign guardians for any children and/or pets you have. Any person in the state of Ohio can make a will as long as they are at least 18, of sound mind and memory, and do so willingly. Upon your death, your will gets admitted to the probate court in the county you lived in at your death and gets “probated”. This is a fancy way of saying that your assets get distributed to the right people (either the beneficiaries named in your will or your next of kin under Ohio law).
What is a Revocable Trust?
A revocable (living) trust is a legal document that allows a Grantor (the person putting assets into the trust) to give a Trustee the responsibility of distributing their assets to the beneficiaries per the terms of the trust. During the Grantor’s lifetime, they will serve as their own Trustee. This means that the person putting things into the trust will be in control of those assets until they die. Upon their death, a Successor Trustee will take over and begin collecting, managing, and distributing assets to the listed beneficiaries.
Why do some people choose a Trust over a Will?
There are many reasons why a client may choose to execute a living trust over just a Last Will & Testament. Although a Will can seem more attractive from a price standpoint, a revocable Trust can offer people more security and peace of mind in their estate plan.
It is a common misconception that if you have a Will executed, your estate will not go to probate court after you die. Whether you die testate (with a Will) or intestate (without a Will), your estate will have to be probated. Now, this may not necessarily be true if you assign “Survivorship Rights”, “Transfer on Death” beneficiaries, or “Payable on Death” beneficiaries to your assets (e.g., your home, your cars, your bank accounts), however, if the beneficiary listed on these documents is incapacitated, incompetent, a minor, or deceased, the asset will ultimately end up in probate court anyways. A revocable Trust’s main function is to avoid probate court. The Trustee is given the power to distribute the assets to beneficiaries without court intervention, unless something goes wrong.
If your Will ultimately ends up in probate court, it will be posted onto the public court docket in your county. Your assets, family information, and personal wishes will be available for anyone to search and read. Because a revocable trust avoids probate court, your personal wishes will remain private to the public. Additionally, third parties who request a trust copy (like a bank or financial advisor) will be provided with a Certification of Trust that functions as a formal trust summary. This summary only includes the most important information: the Grantor, the Trustee, and the powers of the Trustee. There is no information about assets (other than a home if it is owned by the Trust) or beneficiaries contained in a Certification of Trust.
When parents leave their minor children an inheritance through a Will, your children will inherit their assets in a lump sum upon reaching the age of majority (18 in Ohio). A revocable trust allows families to stagger the distribution ages of minor children (e.g., 50% at age 25 and the rest at age 30). Further, a Trustee can be granted discretionary powers to provide the children financial assistance in specific circumstances, such as when they go to college or get married.
A revocable trust can afford the Trustee the power to withhold distributions to a beneficiary in order to avoid their inheritance being used to buy out their creditors or subject to being taken in situations like a divorce. Additionally, if a particular beneficiary has traits like financial irresponsibility or substance dependency, a Trustee can distribute their inheritance over time to avoid dire consequences of a lump sum payout.
Conclusion
What is right for you won’t be right for everyone. Be upfront with your estate planning attorney about your family and financial matters. What you value and your individual goals will be determinative of what your estate plan will look like.