What’s the Difference between a Will and a Revocable Living Trust (and how do I know which will work best for my family)?
Putting your estate plans together is a big step and so important in caring for your family. As you start investigating wills and trusts, it can be confusing to understand what type of planning will work best for your family. Let’s take a closer look to help determine which type of planning is ideal for your circumstances. When properly prepared, both types of plans can work well for you in Colorado.
First things first - Colorado is a probate-favorable state.
This means the probate system is straightforward and typically inexpensive. So, “avoiding probate” isn’t necessarily the priority in putting your plans together. So, many people opt to create a Will to distribute assets at death through the probate process.
Conversely, in states where probate is expensive, lengthy, requires attorneys, and hearings a Revocable Living Trust is typically used as the document of choice, with the intent of avoiding probate altogether when distributing assets at death.
That being said…
…while a Will and a Revocable Living Trust both provide the same function of distributing your assets at death, a Revocable Living Trust has additional benefits during lifetime and this is why some people opt for a Revocable Living Trust-based estate plan even in our probate-favorable state of Colorado. Check out some of these key differences between Wills and Revocable Living Trusts that you should consider when creating your estate plans.
Will-Based Plans Typically Require Probate
First, the biggest difference between a Will-based Plan and a Revocable Living Trust-based plan is that if you intend for your will to distribute your assets at your death, you’re guaranteeing (with some exceptions) that your family must go through at least a brief court process and public exposure, as well as a designated creditor waiting period before assets can be transferred to your loved ones. With a Revocable Living Trust-based Plan, the assets are pre-organized and may be distributed without court oversight or a required waiting period.
Revocable Living Trust Based-Plans Require More Up-Front Organization
Second, if you create a Revocable Living Trust, you should organize your assets during your lifetime by placing them into the trust to ensure a seamless transfer of those assets at death. A Will only goes into effect at death, but a Revocable Living Trust comes into existence as soon as you sign it. Immediately after signing the trust, you should begin the process of “funding” the trust, meaning going through the process of transferring your assets into it. This way, your assets become owned by your trust, and are in one place. While this requires some phone calls and additional paperwork with your financial institutions, it relieves your loved ones of doing this job for you at your death.
With a Will-based estate plan, you ultimately give your Personal Representative (the executor) the work of organizing your affairs. Upon your death, your Personal Representative will be tasked with the tedious job of figuring out what assets you had and where they are held, gathering paperwork, contacting the financial institutions, and then going through the process of adding it all to your estate account. Your Personal Representative can only distribute your assets once they’ve been gathered and organized and the waiting period has ended. If it seems like a lot of work - it definitely can be.
A Will does not work for Incapacity
In addition to the relative ease of administrating a trust, Revocable Living Trust-based planning has a substantial leg up on Will-based planning during times of incapacity. If you become incapacitated or unable to handle your affairs, your co-trustee or successor trustee can continue in your shoes. Because a Will only distributes assets at death, another document known as a General Durable Power of Attorney (GPOA) should be executed so that if you became incapacitated, another person could handle your financial and property affairs. While a GPOA may sound more familiar than a trust, it’s become increasingly difficult to rely on these to be helpful during times of incapacity. In the last several years, banks and financial institutions have implemented additional hurdles in responding to a GPOA to protect their own liability. This has resulted in situations where a bank questions the Agent holding the document, demands to see additional written documentation from two licensed physicians establishing your incapacity, requiring a document that is more recent than 3 years old, or prior completion of internal banking documents before allowing the Agent to act on your behalf. The problem is that if you’ve already lost capacity and didn’t know about the bank’s internal document requirement or update your GPOA, your Agent may have to take legal measures to enforce the GPOA.. However, with a properly funded Revocable Living Trust, the bank or financial institution has prior knowledge and written documentation of the existence of the trust and successor trustees and the accounts are already registered in the name of the trust, so a co-trustee or successor trustee has instant access to the accounts or assets to step into your shoes and act on your behalf.
Will-Based Plans may result in Multiple Probates
If you live in Colorado and own property in another state (at time of your death), your Will will be honored in the other state, BUT this will be done through the probate process in that state. If you have property in several states, this can result in a probate in each of those states, requiring the court fees, attorney fees and legal fees associated with each of those filings. Conversely, if you create a Revocable Living Trust, your properties in other states can be transferred into your Colorado trust, thereby avoiding probate in those other states and easy management and transfer of those properties according to your wishes at deathR.
Will-based Plans are typically less expensive
Wills and Revocable Living Trusts differ in cost, but on the front end, Wills are typically less expensive than Revocable Living Trusts. However, because Wills must go through probate, and even though this may be inexpensive in Colorado, it does take a minimum of 6-12 months, usually requiring a bit of attorney assistance, which can be a few thousand dollars on the low end 🤯. So even though a Trust may cost more upfront to create than a Will, the total costs once probate is factored in can actually make a Trust the less expensive option in the long run.
With all this in mind…
…an Initial Planning Meeting is important to compare the pros and cons of Will-based planning and Revocable Living Trust-based planning, so you know exactly what you want and why, as well as the total costs and benefits over the long term.
At Danneil Law…
…during the Initial Planning Meeting, we’ll go through an analysis of your assets, what’s most important to you, and what your personal preferences and philosophies are for putting your estate plans together.
Danneil Law will not create any documents until we know what you actually need. You’ll decide what will be the most affordable solution for you and your family, both now and in the future, based on your family dynamics, your assets, and your desires.