In the previous post we discussed the costs and benefits of the two documents: a will and a trust. In this section we discuss the following factors which play into the decision: your particular family situation, the number and type of your assets, and cost as a factor.
Family. The traditional family model has been pulled and stretched to encompass all manner of blended families. A typical family today often has children from different relationships and varying manner of collegiality between the sets of parents. A person may select to have a revocable trust because it can be structured so that after their death, their surviving spouse has access to the money, but is unable to change the ultimate distribution of the assets. This protects the children of the first spouse to die against a surviving spouse who may be angry with their step-son or daughter. It also prevents the surviving spouse from bequeathing the assets to a new husband or wife, should they remarry.
Number and type of assets. The type of asset, how it can be transferred, and the total net worth of the individual all factor into whether a stand-along will or a trust is more beneficial.
- Real estate. If an individual owns real estate, and it is not in joint tenancy, it will require a probate proceeding to pass it on to his heirs if it is not in a trust (assuming the real estate is worth greater than $50,000). If spouses hold the real estate in joint tenancy and they wish to pass it to each other, an affidavit of death of joint tenant is enough to maintain title without probate. However, it will still require a probate proceeding once each of them has passed, to transfer it to their children, if not in a trust.
- Financial accounts, Bank accounts, Investment accounts: Financial accounts allow for the owner to pass them on to their beneficiaries by Transfer-on-Death or Pay-on-Death designations. These pass “by operation of law” if a living beneficiary is selected and do not require probate. However, if the accounts pass to a minor, and are over $10,000, then a custodian should be selected in the will or trust so that the money is looked after until the minor reaches the age of majority. If no custodian is selected, a court proceeding may be necessary.
- Life Insurance: Life insurance proceeds may also pass directly to the beneficiaries without a court proceeding. In general, the life insurance company will ask for a beneficiary to prove their identity and then ask for the manner in which they would like to receive payment.
High-net worth individuals. Despite the ability to pass certain assets without probate, high, net-worth individuals still must account for their total assets to the IRS in determining whether the estate must pay estate tax on the assets passed to their beneficiaries. A trust can help alleviate some of the concerns regarding estate tax. A will is not a tax planning document.
Cost of preparation. As discussed in the previous article, a will is significantly less expensive than a trust to create. However, one generally will pay about 5-10x the cost of a trust in probate fees. The question is really whether an individual would rather hold onto their money while they are alive to enjoy it, or if they would like to pass significant savings to their heirs and beneficiaries. If one is leaving everything to a charity, the out of pocket cost for a trust may be unnecessary. However, if one has minor children whom will survive on the residue of one’s assets, reducing post-death costs may be very important.