Benjamin Katz, Esq. P.C.

The following article will briefly describe some of the important differences between a Will-based plan and a Trust-based plan, including the difference between a revocable and irrevocable Trust.  

 

Will

A Last Will and Testament, commonly referred to as a “Will” is a legal document expressing its creator’s (“the Testator”) wishes upon death.  It normally provides for the after-death distribution of property owned by the Testator and nominates an Executor to administer the estate.  It may also name guardians for children or pets and create Trusts to exert some level of control over the use of money and property left to beneficiaries.  Each state has its own rules for creating valid Wills.  In New York, Wills, most commonly, must be signed by the Testator in the presence of two disinterested witnesses for it to be considered valid.  When the Testator dies, the Will must be probated by the Surrogate’s Court before it may be executed.  A primary reason for someone to choose a Trust-based plan rather than a Will-based plan is to avoid the probate process.  

 

Trust

When I say Trust-based estate plan, I am referring to a Living Trust as opposed to a Testamentary Trust.  A Testamentary Trust is created after death, usually by Will.  A Living Trust also referred to as an inter-vivos Trust, is created during its creator’s lifetime.  It takes effect upon the happening of two events: the signing of the Trust agreement by the individual creating it (“the Grantors”) and the transfer of some type of asset to the Trust, which must be accepted by the individual or entity managing the Trust (“the Trustee”). The action of transferring assets to the Trust is referred to as “funding the Trust”.  This may be accomplished by opening a bank account in the name of the Trust with $10.00 or may involve re-titling assets, including real property or investment accounts.   Now let’s discuss some of the differences between Wills and Living Trusts, including advantages and disadvantages of each.  

 

A Trust is created by a written agreement, which does not need to be witnessed.  As mentioned earlier, those creating and transferring property to the Trust are called the Grantors . Those receiving the property and controlling it after the transfer are called the Trustees.  The property will then be used for the benefit of the Beneficiaries.  Living Trusts may be either Revocable or Irrevocable.   In the case of Revocable Living Trusts, the Grantor will usually serve as Trustee and be the primary Beneficiary.   During their lifetime, they will have complete control of the Trust and may choose to do whatever they wish with the property and assets held in the Trust.  They may choose to end, or revoke, the Trust for any reason.   

 

Irrevocable Trusts, on the other hand, do not give the Grantor full control of the assets.  Grantors generally do not serve as Trustees. As the name suggests, Irrevocable Trusts may not be revoked except under very limited circumstances.  Common reasons to create Irrevocable Trusts include avoiding estate taxes, asset protection, government program eligibility, and Medicaid planning.    

 

Whether someone chooses a Revocable or Irrevocable Trust, the assets in the Trust are not subject to probate.   Probate is a legal process established under State law to determine the validity of a Will, to appoint a person or entity to administer the Estate, and to ensure the provisions of the Will are being followed.   You may wonder why probate is something to be avoided.  I will briefly describe the process.

 

Probate

Following death, the nominated Executor may petition the Surrogate’s Court to have the Will declared valid and to be formally appointed as Executor.   Unfortunately, there are many disadvantages to the probate process including payment of a court filing fee (which may be as much as $1,250.00), long delays due to court congestion, procedural requirements, potential Will contests, and creditor claims against the Estate.  The nominated Executor, if acceptable to the Court (must be U.S. Citizen or New York resident, 18 years old, non-felon, able to read and write English, and of sound mind, honest, and otherwise fit to serve), will be under its scrutiny throughout the process and is required to fully account to the Court and those named in the Will for all transactions.  All along the way, attorneys’ fees will eat away at Estate assets until the Estate is closed.  If you own real estate outside New York, your Executor will have to file another proceeding in the State where the property is located after being appointed by a New York court.  Finally, the proceeding is a matter of public record, with access available online to anyone interested in knowing its status.

 

In summary, a Will is a document which becomes effective at death only.   A Living Trust, on the other hand, goes into effect during someone’s lifetime.  It expresses your post-death wishes as well as your wishes during life.  Both have their advantages and disadvantages.   Below is a table of advantages and disadvantages to each estate plan type:

Will Advantages Less expensive up front to create. Simpler to create. You do not need to re-title property. Disadvantages Must go through probate. Does not take effect until after death. Easily contested. Easily invalidated if Will lost/damaged Nominated Executor may not be acceptable to Court. Public Nominated guardians of children not recognized until after Will is validated. More expensive following death Provides no tax advantages

Trust Advantages More flexible than a Will Takes effect during Creator’s lifetime. Avoids probate and all those issues. Provides for incapacity. Protects assets during lifetime. May provide tax benefits. Easily amended. Does not require witnesses to create. Private Named guardians of children recognized immediately upon specified event.   Disadvantages More expensive to create than Will. Property transferred to Trust may need to be re-titled or a new account opened

 

Before using online sites to create boilerplate forms which may not address your specific wishes, call us for a FREE consultation. If a mistake is made or your wishes are not properly expressed, it will be your family and loved ones that have to cope with the consequences.