WHY USE A REVOCABLE TRUST INSTEAD OF A WILL?

July 18, 2024

When most people think about estate planning, they think about a Last Will and Testament. However, the Revocable Living Trust (“RLT”) in conjunction with a “Pour-over Will” has become more common and may often be the better instrument to carry out a client’s wishes. There are multiple reasons why the RLT is becoming a preferred means of managing and distributing assets upon death. Some of the key reasons are discussed below.

Understanding the differences between a Will and a Trust

A Will is a legal document that dictates how the “Testator” would like to distribute his or her assets at death. The Testator appoints an Executor who, upon the Testator’s death, administers the estate and executes the Testator’s wishes as to how to distribute the estate assets. Alternatively, a Trust is a legal entity created by a “Grantor” that gives legal title and rights to a “Trustee” to manage and hold assets for the benefit of one or more “Beneficiaries.” In an RLT, the Grantor is usually the initial Trustee, thereby maintaining control over the Trust assets during life while maintaining competence. The RLT is “Revocable” in that the Grantor may freely amend or revoke the Trust and transfer assets from the RLT back to the Grantor during the lifetime of the Grantor. When the Grantor passes away, the Trust turns from “Revocable” to “Irrevocable” and the successor Trustee takes control of the assets and disposes of them in accordance with the Grantor’s instructions.

To be effective, an RLT needs to be funded, preferably during life or by beneficiary designation upon passing. The objective is for the Grantor to assign all of the Grantor’s assets appropriate for transfer to the RLT during the Grantor’s lifetime. As a backup, a Will (often referred to as a “Pour-over Will”) is used to transfer any assets remaining in the Grantor’s name upon the Grantor’s death that is not distributed pursuant to a beneficiary designation and/or operation of law (e.g. a joint asset with right of survivorship) to the RLT to be administered by the Trustee.

Some Advantages of the RLT

Avoidance of Probate

When a person passes away in New Jersey or New York, his or her Will must first go through the probate process with the local county Surrogate’s Court before the Executor is appointed and any distributions of the estate to the beneficiaries can be made. While some states, like New Jersey, may generally have a quicker and more efficient probate process that usually takes a matter of a few weeks or months, other states, like New York, are known to take significantly longer in certain counties, even for estates that should seemingly be straightforward and uncomplicated. Additionally, while New Jersey’s probate fees are based on the number of pages of the Will, New York’s probate fees are based on the size of the estate; the larger the estate, the larger the fees.

Additionally, even if a person is a New Jersey resident and passes away in New Jersey, he or she may own properties in multiple states. As such, even though the New Jersey probate process may generally be quicker, the properties in the other states may need to go through an ancillary probate process in those states, which adds complexity when trying to probate an estate and can take a long time. If those properties are owned by the RLT and not individually, the ancillary probate process can often be avoided, and the administration streamlined.

Efficiency of Asset Distribution

In the probate process, the nominated Executor in the Will must apply to the Surrogate’s Court to be qualified to act as Executor. The Court then must issue “Letters Testamentary” to the Executor authorizing the Executor to act as legal representative of the estate to administer the estate and, ultimately, distribute the decedent’s assets pursuant to the terms of the Will.

On the other hand, in an RLT, upon the Grantor’s death if the Grantor is also a Trustee, a successor Trustee steps in to administer the Trust without any petition or court involvement. Additionally, if the Grantor becomes incapacitated during his or her lifetime while acting as Trustee, the successor Trustee seamlessly takes control of the Trust. While a person without an RLT could sign a Power of Attorney, the Trust specifies exactly how the Grantor would like the Trustee to manage the Grantor’s assets, while the Power of Attorney may not. (The Grantor should always sign a Power of Attorney regardless, so that the agent can transfer the Grantor’s assets into the RLT.)

The Trustee of an RLT that was funded during the Grantor’s lifetime can generally distribute the estate’s assets without any Court approval. For any assets owned by the Grantor that were not placed in the Trust during the Grantor’s lifetime, the Pour-over Will directs such assets to the Trustee of the RLT. Even if the Pour-over Will needs to be probated, there may be immediate access to funds in the Trust even while dealing with the Surrogate’s Court.

The ease with which a Trustee can take control of the Trust and distribute the assets can sometimes be crucial. Some issues require immediate attention, such as a surviving spouse or children who need the assets from the estate for their immediate living expenses, or if there is a deal involving real estate or other transaction that is pending and requires immediate attention.

Privacy

Clients may prefer the contents of their estate or their disposal of their assets to specific children, family, friends, charities, and/or other institutions to remain private information. Because Wills go through the court system, they are made available to the public. An RLT is a private document that will generally not be made publicly available. The most notable exception to the privacy of a client’s RLT is if there is litigation in the courts involving the client’s RLT, in which case it would be filed with Court documents.

Utility during the Grantor’s Lifetime

Unlike the transfer of assets to an Irrevocable Trust, where a client may be concerned about relinquishing legal control over the transferred assets, a Grantor who creates an RLT maintains full control over the assets transferred to the RLT while he or she is competent. In fact, the Grantor is generally the Beneficiary of the RLT during his or her life. An RLT can be particularly effective in the event of a Grantor’s disability, as discussed above.

Conclusion

Over the years, an RLT, in place of a Will, has become a more popular estate planning tool to dispose of one’s assets at death. An RLT can avoid probate, distribute assets efficiently and quickly, ensure a quick succession of Trustees to manage the distributions, protect a client’s privacy, and benefit the Grantor during the Grantor’s lifetime as if the assets remained in the Grantor’s name.

While there are some administrative steps, such as retitling assets into the name of the RLT, that need to be taken to use an RLT effectively, the advantages of using an RLT often exceed the extra costs and other disadvantages.

The decision between choosing a comprehensive Will or an RLT as the primary estate planning instrument depends on your circumstances and objectives. The Trusts & Estates attorneys at Pashman Stein Walder Hayden P.C. can help you decide if a Revocable Living Trust is the better estate planning document for your needs.

Learn more about our Trust & Estates and Elder Law & Special Needs Planning practices.

* * * * * *

The information contained herein is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials do not create an attorney-client relationship between Pashman Stein Walder Hayden P.C. and/or its attorneys, and the reader of the materials.