A trust generally functions as a replacement for a Will. Most clients are drawn to a trust due to its ability to avoid probate (unlike a Will) and the opportunity to provide ongoing support or distributions to named beneficiaries. In many ways, a trust is a superior estate planning tool to a Will.
So...if you have a trust, do you also need a Will? The short answer is "Yes." The creation of a living trust should be followed by the titling of assets in the trust. In other words, the trust needs to become the owner of the client’s assets/property. The methods and particulars of this vary from asset to asset (and in some cases involves simply naming the trust as a payable on death beneficiary) but as a general concept, the trust needs to become the owner of the assets that belong to the client. When this is done effectively, a Will is no longer needed and probate is avoided. One could, in theory, simply not prepare a Will at all in this scenario.
However, there are sometimes hiccups. I have worked with clients and families that completely forgot about a certain account or investment. Or occasionally, the client made a mistake and failed to property re-title an asset. So, what happens when an asset or two fails to make it to the trust before death? The related Will transfers it there (to the trust) upon death. This would require a probate process (only for those forgotten assets) but the Will would move those assets to the trust—where they perhaps should have been from the beginning. However, it is important to note that there are some nuances to this—as some accounts name beneficiaries—in which case a Will would be unable to “fix” a missed account. Having a Will does not to replace the necessity of re-titling assets to the trust, but it often does go a long way to help when there are oversights.
Property that you own when you die is typically controlled by the terms of your Will, if you have one. There are numerous exceptions to this principle (such as the use of trusts, beneficiary designations and other planning) that can effectively help someone avoid probate.
A Will, when prepared and signed properly, will direct where your assets go—whether to family members, friends, a charity or somewhere else. However, many people mistakenly believe that having a Will effectively keeps their property and assets out of probate—believing that probate is only for people that had no Will. This is simply untrue. While a Will is effective at authoritatively directing the distribution of assets, such distribution is accomplished directly by the probate process and is subject to the cost and time required. Even with a Will, property would typically go through probate (or a similar court process) unless some additional planning has taken place prior to death. Fortunately, there are many estate planning options and tools to effectively avoid probate while accomplishing additional goals, as well. A Will can be an important component of planning—but a Will alone will not keep your assets out of probate.
Why Do You Want to Avoid Probate?
Probate is both costly and time-consuming and often presents a difficult procedural headache for surviving family members after the death of a loved one. In some limited instances, probate may be preferable—but these are very much the exception. On the whole, it is typically advisable to take the necessary steps to avoid probate altogether. The following represent major reasons why you would want to probate:
Length: typically 7-12 months (or longer) from death to discharge of the estate. In most cases, probate simply cannot be administered in less than about 7 months.
Cost: between legal fees, courts costs, notice and publication fees, probate sometimes costs between 4% and 10% of the gross estate
Hassle: length/cost (as mentioned above) but the inherent court procedure, potential hearings and court filings require ongoing attention for several months
Privacy: probate is public record, with much information being available to the public
A trust can be a wonderful tool to help set in place an estate plan that accomplishes your goals. Situations, goals and life circumstances vary, so there really is no across-the-board answer as to whether a trust “makes sense” for a particular demographic of clients. Ultimately, putting in place a trust usually makes the best sense when a client wants to (i) avoid probate upon their death, and/or (ii) use assets, property and money for a specific purpose after their death. First, while there are some other ways to avoid probate, a trust generally does so in the simplest and most comprehensive fashion. Second, a trust is generally the only effective tool at carrying out plans or wishes that assets be used for a certain defined purpose after death. This can be particularly important when money will be needed to raise children or to fund education. However, the ability to control how assets are used is also tremendously important in circumstances where the (now deceased) creator of the trust wants to ensure that assets are not wasted away, wants to provide periodic payments for support, wants to delay all or some of the distributions and/or wants to provide for someone whose judgment or capacities may not be up to managing a large some of money. In working with clients, I view a trust as a potential tool to accomplish the goals and plans of my client. Sometimes, we do not recommend a trust because it is just not needed to accomplish those goals. However, in many instances, this tool becomes very important and is a critical part of setting in place a comprehensive, complete and meaningful estate plan.