Estate Planning: Will vs. Revocable Trust (C. Ryan O'Quinn Commentary)

by C. Ryan O'Quinn  on Monday, Oct. 14, 2013 12:00 am  

C. Ryan O'Quinn

The importance of estate planning cannot be overstated. Most people would be shocked to learn where their assets go when they do not engage in some form of estate planning: Your 18-year-old child could end up with more of your assets than your spouse.

For people who have prepared a will, where their assets end up is not an issue. However, with a little more planning through the creation of a revocable trust, those assets may get to their destinations more quickly. Here is why:

Wills must be probated. When a person dies leaving a will, a petition, death certificate and the will must be filed with a probate court. A personal representative must be appointed by the court to manage the decedent’s assets and liabilities as directed in his or her will. The length of time to complete this process can vary as there are opportunities for delay at various stages. For example, an investigation into the death can delay the issuance of the death certificate.

The personal representative is then charged with accounting for all of the decedent’s belongings and contacting certain parties (heirs, creditors, etc.). This step, too, can be time-consuming and most likely requires preparing and filing more petitions with the court.

After those steps are completed, one might think that the time has come for the assets to be distributed to the people named in the will. Instead, creditors of the estate have six months to file claims against the estate. During that six-month period, most of the assets of the estate are frozen. Only after six months pass and the creditors are paid can the assets be distributed to the people named in the will.

Given all of these steps, the probate of a will can be a long and expensive process.

Revocable trusts operate outside of the probate court. When a person dies with his or her assets in a revocable trust, the new trustee steps in and immediately begins to act as directed in the trust agreement. Nothing is filed with a probate court. No assets of the trust are frozen pending the payment of all of the decedent’s creditors. Everything is accomplished without court involvement and at any pace the decedent directs in the trust agreement.

The basic dispositive terms of a revocable trust are similar to those of the analogous provisions of a will. Directions are given in the trust agreement on who should receive what and when he or she should receive it. In other words, a person’s plan of disposition can be applied to a revocable trust just as it could to a will.

The “trick” that allows a revocable trust to avoid probate is that the trust assets are not part of the estate and thus do not have to be dealt with through a probate court. However, this requires that the assets be transferred out of the estate and into a revocable trust during the person’s life. Much of this transfer can be done with a one-page document declaring ownership in trust of all of the person’s property, although that document probably will not work for assets that have titles or records of ownership (vehicles, bank accounts, etc.). Thus, a person creating a revocable trust will have to retitle those assets in the name of the trust. Some of this same retitling approach to estate planning, albeit in less sophisticated form, is done when a married couple retitles their house jointly. Transferring assets to the revocable trust does not mean the creator of the trust is beholden to the trust agreement thereafter; it can always be amended by the creator, and the creator can almost always pull the assets back out.

In deciding whether to plan an estate using a will or a revocable trust, one should consider:

  • The size of the estate. Usually, the larger the estate, the more appropriate the trust.
  • What one hopes to happen after his or her death, to whom should assets be given and when should they get them.
  • Whether those hopes necessitate doing the legwork beforehand (implementing a revocable trust and transferring assets) or saving the legwork for a probate proceeding (using a will).

C. Ryan O’Quinn is an associate with Quattlebaum Grooms Tull & Burrow PLLC of Little Rock, where he concentrates his law practice on estate planning, taxation and corporate transactions. Email him at ROQuinn@QGTB.com.

 

 

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