Wagons and Wills, Jets and Trusts
By Jason Dixon, J. Dixon Law PC
It used to take between five and six months to travel from Missouri to California by wagon. Today, the same trip can be made by jet in four and a half hours. Both modes of transportation get you to your destination, but would you even consider making that trip by wagon today? While perhaps not as revolutionary or dramatic a difference as jets, trusts are the estate planning equivalent of the jet. Here are some of the differences and advantages of a revocable trust versus a will for estate planning.
A will contains your final instructions about what should be done with your assets upon your death. It goes into effect only after your death and must pass through a court proceeding called probate before your instructions can be carried out. To be valid, a will must comply with certain formalities.
A revocable trust, if properly funded, also provides instructions on how your assets are to be distributed but goes into effect during your lifetime and provides for a seamless (no court involvement) distribution of property upon your death and also provides for you in the event you become incapacitated.
Here is how a revocable trust works: While living, you place your assets in your trust. You still maintain control over the assets and may use them for your benefit the same as if they were still in your name. Assets can be transferred in or out of the trust during your lifetime and you may amend the trust and its terms at any time, as many times as you like. Or you can revoke it completely. There are no tax consequences during your lifetime. For tax purposes, assets in the trust are treated as yours and the trust’s tax identification number will be your social security number. A trust also allows you to designate in advance someone to manage the assets for your benefit in the event you become incapacitated. Upon your death, the person you have designated as your successor trustee can immediately step in and manage or distribute trust assets according to your directions—without court involvement.
A revocable trust has several distinct advantages over a will.
It avoids probate. To the extent your assets are properly transferred into the trust, it avoids the need to probate your estate. Probate is a court proceeding that validates a will and provides oversight for the distribution of estate assets to creditors and beneficiaries. Probate has been simplified in Utah, but there are still good reasons to avoid it. First, there is no privacy in probate. The provisions of a probated will become a matter of public record. Second, not all states have a simplified probate process like Utah. We’re a mobile society (think jet airplanes versus wagons) and you may move to a state where the process is not simplified. Third, real property located in another state cannot be probated in Utah with the rest of your estate. It must be probated in the state where it is located. This is called ancillary probate. Opening additional probate cases in each state where you own real property is cumbersome and can become very expensive.
It avoids the need for a court supervised conservatorship by appointing in advance someone to manage your financial affairs in the event you become incapacitated. You decide what requirements must be met before you may be deemed “incapacitated.” Court conservatorship proceedings are cumbersome and expensive, and do not guarantee that the person appointed by the court to manage your finances is the person you would have picked.
Money and assets in your trust are immediately available after your death. Your successor trustee will be able to immediately step in and pay funeral expenses, estate taxes, administrative expenses, and debts without waiting for court approval.
You decrease the burden on family or friends. With a revocable trust, you are appointing someone in advance to manage trust assets upon your death or disability, without the need for court oversight or proceedings. This greatly reduces the amount of effort required on their part and makes for an easier, more streamlined transition.
A wagon or a jet airplane—a will or a trust—each will serve its purpose, but in both scenarios one has many advantages over the other.
Jason Dixon is a Utah and Arizona licensed attorney focusing on estate planning and business law. He and his wife are the parents of three young, energetic children referred to as the “jalapenos.” When not giving back rides or telling bedtime stories, he enjoys practicing the bagpipes, mountain biking, camping, hiking, and just enjoying the incredible landscapes of southern Utah. He can be reached at Jason@estateplanneronline.com or directly at 435-216-2084.