Should I Use a Will or a Revocable Living Trust as My Primary Estate Planning Document? Separating Facts From Fiction (Updated July 2023)
 
by Richard Morgan 

As part of your base (core) estate plan, you need to determine if a Will or a Revocable Living Trust (RLT) should serve as your primary estate planning document. Sadly, a lot of misinformation exists about the benefits of RLTs and how they are vastly superior to the use of a Will as the primary estate planning document. RLTs can absolutely provide benefits that a Will cannot provide, but they are not for everyone. The purpose of this article is to set the record straight so that you will be better prepared to decide which may be a better option in your particular situation. At Morgan & DiSalvo, we do not believe clients are generic. We believe every client needs to deal with their own unique situations, and it is our purpose to assist them in this journey.

RLT based estate plans are generally more expensive to create and more hassle to deal with when compared to a Will based estate plans. So why go with an RLT based estate plan? Because for many, the additional benefits that an RLT can provide outweigh the additional costs and hassles. This article will first provide an Executive Summary of this topic and will then go into more detail about each of the following: (i) the difference between a Will and an RLT; (ii) the 5 most common misconceptions about the benefits of RLTs; (iii) a discussion of the 11 additional benefits which can be achieved by using an RLT based estate plan; and (iv) a discussion of whether you need to transfer your assets to (fund) your RLT to achieve each of the 11 listed additional benefits.

We want to note that while RLTs are sometimes called Revocable Trusts (RTs) or Living Trusts (LTs) and they’re all the same thing, we will use RLT in this document.

Executive Summary:

Will based estate plans generally cost less in legal fees to create and come with somewhat less hassle. However, RLT based estate plans can provide 11 additional benefits which you may find significantly outweigh the additional costs and hassles. Deciding which to choose is a personal decision. In our firm, we have found that about 60%-70% of our clients will choose to go with an RLT based plan based on one or more of the 11 additional benefits discussed below.

I. What is the difference between a Will and an RLT?

A Will ((often called a Last Will & Testament) is a document in which you state what you want to happen with your assets which pass into your probate estate at your death. The Will should, at a minimum, appoint an Executor to administer the estate, pay your debts and provide for the distribution of your remaining assets to your desired beneficiaries. A Will is also used to name your desired guardians for any children you may leave behind that are under age 18. A Will only takes effect at your death, and it must be formally acknowledged as valid by an appropriate court before it will be allowed to take effect. The process of having the Will acknowledged as valid is the actual “probate” process – the process of dealing with the estate’s assets is actually the estate administration process. A Will can serve as the primary estate planning document, as described above, or it can simply be used as a coordinating document (referred to as a “pour-over” Will) to empower the Executor to pass the assets in the probate estate over to your RLT.

An RLT is a particular type of trust that is often used as an individual’s primary estate planning document. For a discussion of what trusts are in general, please see our prior Newsletter on this topic. This type of trust can be changed or terminated as long as the creator (Trustor, Settlor or Grantor) is alive and has legal capacity. You, as the trust creator, name a Trustee (often, you will serve as your own Trustee initially) to manage any assets which you transfer to the RLT during your lifetime. Transferring your assets to your RLT is referred to as funding your RLT. The RLT generally provides that any assets it owns are to be used for your benefit during your lifetime. The RLT takes effect as soon as it is signed, although assets must actually be transferred to it before it will control them. If you become incapacitated during your life, your successor Trustee (that you name in the trust document) will take over managing the RLT’s assets for your benefit. Upon your death, any assets already owned by the RLT can be dealt with immediately, by the successor Trustee. Your other assets will also normally be set up to pass to your RLT at your death via beneficiary designations[1] and your “pour-over” Will. At this point, the RLT acts like a Will but is outside any probate court processes. There is no formal acknowledgment process required for an RLT as there is with a Will.

It should be noted that if you failed to ensure that all of your assets were either transferred to the RLT during your lifetime, subject to a beneficiary designation, or owned jointly with rights of survivorship, then assets may still end up in your probate estate. In that case, your pour-over Will is needed to be admitted to probate, so that the assets in your probate estate can be legally transferred to your RLT for eventual distribution.

II. What are the 5 most common misconceptions about the benefits of RLTs?

Misconception #1: Probate is an expensive, hassle filled process that you need to avoid.

This statement is only generally true IF you live in a bad probate state, such as Florida or California. Georgia is considered a simple probate state since a well drafted Will can avoid almost all probate court requirements.

In Georgia, unless a post-death dispute arises, the probate process is purely administrative where you file the original Will, the Petition to Probate in Solemn Form (a form that you can find on the probate court’s website), and possibly, the death certificate. Assuming all the heirs (closest living relatives as determined under Georgia law) are adults and signed off consenting to the Petition and no one is disputing (filing a caveat to) the Will’s validity, then the proposed Executor is asked to raise their right hand and agree to follow the terms of the Will. At that point, the probate court clerk provides the Executor with a document called “Letters Testamentary,” which states that the individual is the Executor of the estate. Assuming you had a well drafted Will, then from there on out, the Executor just deals with the estate administration process without any court oversight or filings. The probate process may take an extra month or two if any heir is a minor or if the Will was not well drafted (but the heirs all agree to waive the normal probate court oversight requirements and bring in statutory Executor powers). The probate court filing fees are minimal.

It should be noted that the Georgia administration processes are fairly similar regardless of using a well drafted Will or an RLT as your primary estate planning document.

Florida’s probate process is the polar opposite of Georgia’s when it comes to expense and hassle. Florida law requires a lawyer to handle the probate process (although recommended, it is not required in Georgia), and the Florida Code sets out an egregious percentage fee schedule to pay the lawyer for these services. While some exceptions exist, normally court hearings are required as part of the probate process. Because of this expensive and onerous process, most individuals with competent legal counsel and a decent amount of wealth will go out of their way to avoid the Florida probate process, which normally entails using a fully funded RLT based estate plan.

[1] Special care is needed with tax deferred accounts, such as IRAs and Qualified Retirement Plan accounts, to ensure that you achieve a desirable outcome under the Required Minimum Distribution rules.

Misconception #2: Simply using an RLT as your primary estate planning document avoids the probate process.

Avoiding probate requires you to ensure that no assets pass to your probate estate at your death, which requires you to own your assets properly and to use proper beneficiary designations. Assets do not pass to the probate estate if: (i) they pass elsewhere via a beneficiary designation; (ii) they pass to the surviving joint owner for assets owned as joint tenants with rights of survivorship (“JTWROS”) (or, in a small number of states, joint as tenants by the entireties); or (iii) they were already owned in trust (an RLT or otherwise) at your death.

If the desire is to avoid probate by using an RLT, then you will normally need to fully fund it before your death. Fully funding your RLT means that you transfer almost all of your assets to your RLT during your lifetime. The only assets that are not transferred to your RLT would include assets you prefer to own as JTWROS (such as a joint checking account), tax deferred type accounts (such as IRAs, Qualified Retirement Accounts, and annuities), and life insurance policies. Transferring tax deferred type accounts during your life to a trust may be treated as an income taxable event. As a result, tax deferred type accounts avoid probate by ensuring proper beneficiary designations. While life insurance policies can be transferred to an RLT during your life, it is normally more efficient to keep ownership in your name and have it pass via beneficiary designation.

Misconception #3: An RLT provides unique income tax benefits during your lifetime.

RLTs are treated as “grantor trusts” during the creator’s lifetime. This treatment means that the trust’s existence is ignored for income tax purposes and anything that happens taxwise in the RLT during the creator’s lifetime is reported on the creator’s annual income tax returns.

Misconception #4: An RLT provides wealth transfer (gift, estate or GST) tax benefits that you cannot otherwise obtain with a Will based estate plan.

This is simply incorrect! Any tax benefit that can be achieved in an RLT can likewise be achieved by using a Will based estate plan. It is often stated that you should use either a simple Will based plan or a complex trust-based plan. This statement is nonsense in a simple probate state like Georgia. Wills and RLTs can be structured in essentially the same way as to what happens upon your death.

Misconception #5: An RLT can protect your assets from your current or future creditors during your life or after your death.

This statement is false, but it needs some further discussion. An RLT is considered to be a “self-settled” trust (one you create and retain the ability to benefit from). I do not believe any state provides any asset protection benefits during the creator’s life when using an RLT. It is also my understanding that most states, including Georgia, fail to provide any legally effective asset protection from your creditors for assets owned in your RLT at your death. However, one possible practical exception exists. From a practical perspective, it is somewhat more of a hassle for your creditors to collect from an RLT after your death, which may give the Trustee some limited leverage in negotiating a reduced payoff amount.

III. 11 additional benefits available by using an RLT based estate plan.

Benefit #1: Avoid extra costs, hassle and time delay of the probate process, especially if you live in a bad probate state, such as Florida or California.

As discussed, Georgia is a relatively simple (not bad) probate state.

Benefit #2: You want to make it easier on your loved ones to assist you during your life if you become incapacitated on a long-term basis in the future, or if you may simply want or need assistance in managing your assets on a long-term basis.

For temporary asset management situations, a financial Power of Attorney document is often sufficient. However, if you end up needing someone to manage your assets (or help you do so) for a longer period of time, an RLT (in conjunction with a Power of Attorney) often proves superior to having only a Power of Attorney. This is because an agent under a Power of Attorney is merely authorized to deal with assets you own (a legal helper), while a Trustee of an RLT is the actual legal owner of the assets (even though the assets are held for your benefit). Financial institutions, government agencies, and other third parties are often reluctant to honor Powers of Attorney, especially older ones, as they are afraid that the Power of Attorney may no longer be valid, that the agent may not actually have the authority to undertake a given transaction, or that the agent may be attempting to misuse the power of attorney for their own benefit. States like Georgia that have enacted the Uniform Power of Attorney Act have reduced this issue, but it still exists. This reluctance does not usually arise when a Trustee is attempting to act under an RLT.

This benefit is often important to those getting older (beginning at age 45 or so) or otherwise fear that they have a higher-than-normal chance of becoming incapacitated or disabled for an extended period. This is often one of the primary reasons for the selection of an RLT based estate plan in a relatively simple probate state like Georgia.

Benefit #3: An RLT based estate plan is the most powerful way to protect yourself from your own possible destructive actions and from others who may wish to take advantage of you in the future if you ever begin to suffer from a weakened mental state.

As you age, the chance that you will suffer a decline in mental or physical function increases. The transition from being fully competent and independent to becoming mentally or physically incapacitated is often a slow process. This means that you may go through a period, which could be several years, where you may not be fully incapacitated, but your condition has still declined significantly. During this transitional phase, you may make increasingly poor decisions. Predatory people, either “bad actor” family members or outsiders, may also try to take advantage of you if you are in a weakened state. Having an RLT based estate plan can offer you a way to protect yourself in a declining state from your own poor decisions, as well as from predatory persons. With an RLT in place, either you or your Power of Attorney agent can transfer your assets to the RLT and allow a co-Trustee or successor Trustee to take over your financial affairs. This allows the Trustee to protect you during this transitional phase by helping prevent you from engaging in transactions that may be harmful or otherwise ill-advised.

Under this structure, either you can resign as Trustee when you decide that you need assistance, or you can be removed if you are determined to be incapacitated under the terms of the RLT. Incapacity is often defined as not being able to handle your business or financial affairs as determined by both your health care agent (under your Advance Directive for Health Care, for those in Georgia) and your primary attending physician, or with two appropriate doctors if you do not have an available Health Care Agent. This protection depends heavily on your co-Trustee or successor Trustee, so it is critical that you choose your Trustees very carefully.

Like Benefit #2, this benefit is often important to those getting older (beginning at age 50 or so) who otherwise fear that they have a higher-than-normal chance of becoming incapacitated or disabled for an extended period.

Benefit #4: Make your loved one’s lives easier upon your incapacity and/or death by “taking one for the team.”

More and more of our clients, especially those that are older and single, are choosing to go with a fully funded RLT based estate plan to make the administration of their situation as easy on their loved ones as possible in case of their incapacity and/or death. Fully funding your RLT does take some effort, but it will make life easier for your loved ones if and when they need to step in to assist you.

Benefit #5: Avoid ancillary probate if you own (or may own in the future) a second home or other real property outside your state of residence and the property is not owned by an LLC or other business entity.

In general, a Will must be probated in each state where you own real property at your death, in addition to a probate process in the state where you maintain your primary residence (domicile). However, if the out-of-state real property is owned by an RLT, there is generally no need to probate your Will in the other state since the real property owner (the RLT) did not die upon your death. This can allow the Trustee of the RLT to transfer title to the intended beneficiaries more quickly and with fewer costs and hassle.

Benefit #6: Best vehicle to avoid post-death disputes.

If you are part of a blended family (have children by prior marriages), intend to treat family members unequally, intend to disinherit a family member, intend to benefit people who are not legally considered family members, or if for some other reason you believe that there may be a dispute following your death, you should strongly consider utilizing a fully funded RLT based estate plan. Since assets owned by an RLT at your death do not have to be dealt with through a formal probate process, there are fewer opportunities available for disgruntled family members to cause trouble. In addition, it can be much more difficult to successfully challenge a trust than to challenge a Will. Therefore, owning your assets in an RLT is one of the best and most powerful ways to avoid post death disputes and help ensure that your desired estate plan will be carried out as intended.

Benefit #7: Possibly prevent a spouse from disrupting your estate plan by making a claim for Year’s Support (in Georgia) or a forced (or “elective”) share (in other states).

Georgia allows a surviving spouse to claim a “Year’s Support” from a decedent’s probate estate. In addition, many other states provide for a minimum “forced share” amount which a surviving spouse can claim after a decedent’s death. In most other states, assets which are owned by an RLT at a person’s death do not become subject to a potential Year’s Support or forced share claim. This can be especially helpful in a blended family situation. Some states, including Florida, historically have expanded the reach of their forced share laws so that RLTs no longer work to avoid these claims.

Important update: A recent change in GA law may now enable a creditor of a probate estate, regardless of when the debt was created, to reach the assets of an RLT. While not currently clear, this may open up RLT assets to a claim for Year’s Support.

This issue could also arise as to Year’s Support in Georgia as to a minor child or a forced share in other states as to children. An example could include a situation where you may have an estranged child and the other parent of the child could be litigious, greedy or otherwise.

Benefit #8: Ability to easily make and change specific bequests of money or other property via a legally enforceable Specific Bequest Schedule.

Under Georgia law, you are permitted to make specific bequests (bequests off the top before the remainder is distributed) via a schedule (or other separate writing) to a Will of tangible personal property items, such as jewelry, artwork, photos, or the like. However, this same type of schedule to an RLT can contain specific bequests of any type of property, including amounts of money. The reason that this is important is the ability to create and change this type of schedule without the need of an attorney. Hence, it can be done on your own at no charge or you can pay an attorney a relatively small amount to prepare the schedule for you. If you wish to provide a specific bequest of money or other non-tangible personal property when using a Will based estate plan, you will need to properly amend your Will every time your desired specific bequest list changes. This will normally require the assistance of an attorney and more significant attorney fees.

Benefit #9: You do not have enough perfect people[1] to appoint as your agent under your Power of Attorney, and you would like to use a Trust Company in this role.

While most Trust Companies are unwilling to serve as an agent under your Power of Attorney, several are willing to do so if they are also named as the successor Trustee under your RLT based estate plan. If you end up incapacitated (incapable of handling your financial affairs), the Trust Company would use its power under the Power of Attorney to transfer most or all of your assets to your RLT where it will then serve as your successor Trustee. Because you cannot normally change the ownership of tax-deferred retirement savings accounts (such as IRAs or 401(k) accounts) to an RLT during your lifetime without potentially generating negative income tax consequences, the Trust Company will likely still need to use your Power of Attorney to manage these type accounts.

Benefit #10: RLT based estate plans are more mobile if you ever move to another state in the future.

If and when you ever move to another state, you will want to update your estate plan to best deal with that state’s laws. You will surely want to update your power of attorney and health care related agency documents, so they are more easily accepted in your new state of residence. You will also want to update your Will to take full advantage of the probate and estate administration related laws in your new state of residence. However, while you are free to update your RLT, no such changes are normally legally necessary since a properly drafted trust agreement will already fully contain all the provisions it will ever need. What this normally means is that a Will based plan is often redone from scratch in the new state of residence, whereas only the more standard (and less expensive) power of attorney, health care agency documents and “pour-over” Will are redone with an RLT based estate plan.

Benefit #11: Ability to keep your estate plan private.

Wills must be filed with the Probate Court of the county where a decedent maintained his or her primary residence, in addition to any possible ancillary probate courts. The requirement to file any original Will in one’s possession after the decedent dies applies in Georgia even if all assets actually pass outside the probate estate and no formal probate is required. RLTs are private documents that are not normally required to be filed with any court, so they do not generally become public records.

IV. To what extent do you need to fund your RLT in order to achieve the 11 benefits described above?

Benefit #1: Avoid probate.

You need to fully fund your RLT to help achieve this benefit to the extent your assets will not otherwise pass via beneficiary designation or by being owned jointly as joint tenants with rights of survivorship (or by Tenant by the Entirety in Florida or other applicable state).

Benefit #2: Best vehicle for long-term incapacity.

You can wait to fund your RLT until you become or see that you are becoming incapacitated. If need be, your agent under your Power of Attorney can transfer your assets to your RLT when needed.

Benefit #3: Better ability to protect you.

Same as Benefit #2.

Benefit #4: “Take one for the team” to reduce hassle & stress on loved ones.

You need to fully fund your RLT to help achieve this benefit.

Benefit #5: Avoid ancillary probate for out-of-state real property.

You only need to transfer your out-of-state real property to your RLT to achieve this benefit.

Benefit #6: Avoid post-death disputes.

 You need to fully fund your RLT to help achieve this benefit.

Benefit #7: Avoid year’s support and, possibly, a forced share.

You need to fully fund your RLT to help achieve this benefit.

Benefit #8: Easily create & change specific bequests with schedule.

You do not need to fund your RLT to achieve this benefit.

Benefit #9: Ability to select a Trust Company to serve as POA agent.

You do not need to fund your RLT to achieve this benefit.

 Benefit #10: More mobile if you move to another state.

 You do not need to fund your RLT to achieve this benefit.

 Benefit #11: Ability to keep your estate plan private.

In a simple probate state like Georgia, you do not need to fund your RLT to achieve this benefit.

Choosing between a Will based estate plan and an RLT-based estate plan is a personal decision based on your weighing of the lower cost and hassle of a Will-based plan vs the additional benefits provided by the RLT based plan in your particular situation. There is no one-size-fits-all advice that we can give in this regard. We can tell you that over the years our clients have moved from favoring Will based plans (approx. 60% Wills vs 40% RLTs) to more recently favoring RLT-based plans (approx. 60% RLTs vs 40% Wills).

If you would like to learn more about this important and timely topic, please call our offices at (678) 720-0750 or e-mail us at info@morgandisalvo.com to schedule an estate planning consultation to discuss your particular situation.

[1] A perfect person for such a fiduciary position should have the following attributes: (i) being honest and trustworthy beyond any doubt whatsoever; (ii) being responsible to figure out what needs to get done, with any needed assistance, and get it done in a reasonable period of time; (iii) being ok with taking on this important, and somewhat hassle filled, responsibility; and (iv) not having any conflict type issues, or other attributes that could end up causing a future dispute.

For a complimentary estate planning consultation or for assistance with updating your current estate planning documents, contact Morgan & DiSalvo at 678-720-0750.