Do I Need a Will or a Trust? Yes!
People often wonder, when it comes to estate planning, whether they need a will or a trust. The short answer is that we see this not as an either-or question; rather we recommend having both. There is a significant degree of overlap between a will and what we will call a living revocable trust, but there are also significant differences. Any estate plan – and particularly a complicated estate plan – can benefit from both. Let’s look at the basic differences between the two.
What is the difference between a Last Will and Testament (will) and a living trust?
Your will determines what happens to your assets when you die. Your wishes are carried out by an executor. It does not have any effect until you die. You do not need to reveal the will’s contents to anyone, including the beneficiaries, while you are alive, but it becomes a public document when it is probated.
By contrast, a living revocable trust takes effect immediately upon execution and is effective throughout your lifetime. When you create a living revocable trust, you will typically name yourself trustee. So, even though many of your assets are technically in trust, you are in complete control of them throughout your lifetime. Furthermore, if the situation changes, such as through a divorce, the birth or death of a child, or other beneficiary, you can change the terms of the trust at any time. You can also designate an alternative trustee who will take over the administration of the trust if you become incapacitated or die. One of the most favorable aspects of a living revocable trust is that you can use it to avoid probate (but usually not the inheritance taxes payable to the Commonwealth of Pennsylvania).
What can I Include in my Will?
The range of items and bequests you can include in your will is very broad. First, you will name an executor to administer the will and an alternative executor if the first named executor cannot serve. Generally, the most valuable items included in the will are real property, such as your home. You may direct the executor to convey the property directly to your chosen beneficiary, or you may direct that the property be sold and cash be distributed. The same rules apply to personal property. Rather than making specific bequests for every piece of personal property you can convey them with what is called a residuary clause. This simply means that every piece of your property not specifically named passes pursuant to this clause to a named individual. You will also want to include your wishes regarding funeral and burial arrangements in the will. You can even make plans for your pets, including the creation of a “pet trust.” Note that not everything passes through the will. For example, retirement accounts such as 401(k) plans are typically established with named beneficiaries and do not pass through the will.
What are the Risks if I have Neither a Will nor a Trust?
This is a situation we recommend you avoid. If you die without a will, you die what is known as “intestate”. This means that Commonwealth of Pennsylvania’s laws determine how your assets will be distributed and who will serve as the administrator of your estate. These laws are inflexible and may or may not reflect what your wishes are. They are too complex to list fully here, but just a few examples will suffice. If you have children but no spouse, the children will get everything (in equal amounts even if you might think that one child might deserve or need more than another). If you have a spouse, parents and no descendants, your spouse gets $30,000 plus half of the remaining estate, and your parents get the rest. It can get more complicated than that, which is why we recommend speaking with a knowledgeable attorney about both a will and a living revocable trust.