A great majority of clients call our law firm looking for a simple Will. After an in-depth first consultation, the great majority of our clients decide that a Revocable Trust is a much better choice. After all, whose life is that S-I-M-P-L-E? Read on to learn the difference between a Will verse a Trust and clear up all those questions you always had but never asked.
To start with, both a Last Will and Testament (“Will”) and a Revocable Trust are legal documents that distribute someone’s assets after their death to the “beneficiaries” as listed in the document. Assets means everything a person owns at the time of their death, such as their home, other real estate, vehicles, boats, bank accounts, life insurance policies, retirement accounts, business interests, and even pets. Although both a Will and a Trust will get the inheritance to the desired beneficiaries, the process on how it gets to them is vastly different.
HOW DOES A WILL DISTRIBUTE MY ASSETS?
When someone creates a Will, they often don’t know that after their death, their family must open up a probate case with the Circuit Court of the county listed as the last place on residence on the individual’s death certificate. Probate, or probate administration, is a court process that passes ownership of the decedent’s assets to the beneficiaries listed in their Will. If the person passed away with no Will, probate administration is necessary to pass assets to the next of kin, as determined by Florida inheritance law.
The probate process includes all the below tedious steps:
- Filing a petition with the probate court in the county that is listed as the last residence on the death certificate
- Providing notice to all heirs (or anyone who is listed as a beneficiary in the Will)
- Appointing a personal representative (a/k/a executor) to administer the estate
- Tracking down and protecting all estate assets
- Settling debts or creditor’s claims against the estate (credit card debts, medical bills, utility bills, etc.)
- Distributing assets to the decedent’s beneficiaries according to the Will or Florida Law
HOW DOES A TRUST DISTRIBUTE MY ASSETS?
Conversely, if the decedent had a Revocable Trust (aka Living Trust), the probate process may be avoided altogether. When a person passes away with a properly funded Revocable Trust, all their assets pass to the beneficiaries as listed in their Trust without the need for a probate court process.
A Revocable Trust is basically a legal agreement in which the Trust creator, often called the grantor, puts their assets into the Trust and under the care of a trustee. The trustee is usually the same person who creates the Trust. Once the initial trustee passes away, a successor trustee (as listed in the Trust) simply steps into the shoes of the decedent and distributes the assets as listed in the instructions of the Trust.
SO WHY WOULD ANYONE CREATE A WILL?
There are a few good reasons where a Will may be necessary. The main reason is if someone has minor children, (those under 18 years of age in Florida) – the Will is where you would list guardians for your children (in the event that both you and the other natural parent both pass away). Putting your wishes in writing reduces lawsuits that arise over custody (often involving both sets of grandparents) in cases of your sudden or unexpected death. Additionally, if you do not own real estate and have a handful of financial accounts with beneficiaries listed on them, then a Will may be sufficient for you.
THE FLEXIBILITY OF REVOCABLE LIVING TRUSTS
Although a Will gives instructions for distributing your property and is essential for naming guardians for minor children, you typically can’t set specific conditions in a Will, such as requiring your daughter to finish college in order to inherit your house. With a Trust, you could make such a condition, or virtually any condition, giving you greater control over the distributions that are made. Common conditions include being able to spread Trust income or principal over a period of time, instead of making a single, lump sum gift to a beneficiary.
A Trust can be set up for a specific number of years or for the child’s lifetime, for example. The trustee could manage the principal and use investment income to pay distributions to the child. A drawn-out payment schedule, such as a distribution every five years, can prevent the inheritance from being spent too quickly.
The individuals creating the Trusts have the ability to set up “guardrails” that take into account the beneficiaries’ different lifestyles, priorities, and desires. These conditions allow a grantor to feel like he or she is still in control during their lifetime or after death.
There are many types of Trusts, but the most common is a Revocable Living Trust. It is called “living” simply because it goes into effect while you’re alive, and “revocable” in that you are free to change the instructions you provide.
WHAT OTHER TYPES OF TRUSTS EXIST AND WHAT DO THEY DO?
Irrevocable Trusts Provide Protection Against Lawsuits and Creditors
Irrevocable Trusts cannot be terminated and are rather difficult to change. A common use for an Irrevocable Trust is to provide asset protection for a grantor and protect their family’s assets against creditors or lawsuits. By placing assets into an Irrevocable Trust and naming an independent trustee, a grantor relinquishes control over and loses access to Trust assets. Therefore, if structured properly, the assets in an Irrevocable Trust cannot be reached by a grantor’s creditors.
However, that does not mean you can escape existing legitimate debts just by moving all your money into an Irrevocable Trust. If a grantor conveys assets to an Irrevocable Trust in order to defraud or delay a legitimate creditor, a grantor is engaging in fraudulent conveyance. If a creditor can prove fraudulent conveyance, a court can reverse a grantor’s asset transfer to a Trust and allow creditors to access Trust property to satisfy judgments.
Medicaid Asset Protection Trust
Another type of Irrevocable Trust is the Medicaid Asset Protection Trust. This can be an extremely useful tool for seniors who may be faced with the need for nursing home care. Nursing homes are tremendously expensive and can eat up accumulated assets quickly. This type of Trust work employs legal and ethical methods, as listed on the Medicaid website, that can transfer an individual’s assets so that they may qualify for Medicaid later in life. Here, you, as the Grantor, create the Trust, fund it with certain assets, and name an individual trustee (other than you or your spouse), to manage the Trust. You can specify exactly how the assets should be managed and you will be entitled to all the income for the rest of your life. The principal of the Trust assets will remain in the Trust until your death. When you pass away, the Trust assets will pass directly to your designated heirs.
Special Needs Trusts Protect Government Benefits
Another reason for an Irrevocable Trust would be to provide financial support for a child with a disability, while protecting his or her eligibility for public assistance. You can put money or property into a Special Needs Trusts (“SNT”) and appoint a trustee to use the funds to purchase necessities for the beneficiary. The beneficiary does not own the property in the Trust, so it would not prevent the person from applying for government benefits.
SNT’s generally work like this: a person wants to make sure their disabled loved one is provided for upon their death. Instead of leaving a lump sum of money behind in their Will, they create an SNT to benefit the disabled individual. The grantor places certain assets into the Trust and the assets in the Trust are then managed according to the grantor’s terms and used to help pay for the beneficiary’s needs. The most important aspect of an SNT Trust is that the assets in the Trust are not counted as being owned by the disabled individual. This allows them to qualify or retain their public assistance benefits such as Medicaid, Supplemental Security Income (SSI), etc.
Our experienced estate planning attorneys can help decipher whether a Will or a Trust is right for your family. Contact OC Estate and Elder Law at (954) 251-0332 or info@ocestatelawyers.com to get started on your free consultation. Our attorneys are fluent in English, Spanish, and Russian.
