Revocable Trust vs Will: Which to Choose in the Age of Coronavirus
With the pandemic placing stress on all of us already; estate planning shouldn’t be a confusing process to understand right now.
Here, we break down the differences between: revocable trust vs will.
Introduction
Coronavirus is changing our world. More people than ever realize just how fragile life can be. That something as tiny and inconspicuous as a virus has the potential to threaten our lives and instantly cripple the economy is undoubtedly frightening enough. The fact that any one of us could become sick, or even fall victim to it, is even more challenging to consider. There’s just so much we can’t control.
But that doesn’t mean you can’t control anything at all. When you can’t predict the future, it makes sense to plan for every situation – including the worst-case scenario that you pass away as a result of the virus. The only catch is that you’ll need to decide which approach is best for you, your assets, and your beneficiaries.
There has never been a better time to handle an unplanned or incomplete estate than right now. We hope this guide will help to demystify the difference between revocable trusts, wills, and why they’re so useful in these trying times.
What is a Will?
Most people have at least heard the term “will” before – maybe on television, within a commercial, or perhaps even during a conversation with friends. But what exactly does it mean, and why might someone have one?
At its heart, a will is a legal document that indicates how you want your affairs handled after you die. This includes both funeral arrangements (e.g., whether you want to be cremated) as well as dispersion of physical property, such as money, vehicles, real estate deeds, jewelry, and more.
Wills also often contain custody arrangements for children, pets, and other dependent individuals. This is especially critical where there is a risk for both parents to become severely ill. Not only can it help prevent kids from spending time in foster care, but it also ensures they’re safe as they grieve your loss.
Why Have a Will?
The main reason for having a will is really quite simple: it enshrines your wishes after you pass on. This alone can bring great peace of mind, especially in uncertain times; the pandemic certainly qualifies. You might be unable to fully control the virus, or even whether or not you become sick. But you can at least feel confident that your affairs will be handled right if you fall victim to it.
Having a will can also protect your loved ones from experiencing strife after your death. There is no need to guess your wishes, argue about the dispersion of assets, or struggle to gain clarity on how to handle your affairs. They can simply execute the instructions contained within your will instead.
Advantages:
- Makes your loved ones aware of your wishes
- Fast and easy for most people to create
- Can be adjusted at virtually any time
- Can be customized for most scenarios
- May protect children and/or dependents
Disadvantages:
- Must choose, and assign, an executor you trust
- Must go through a cumbersome probate process
- May leave assets vulnerable to creditors
- Can be costly if your estate is very large
- May be inadequate for some situations
What is a Revocable Trust?
In order to understand this term, you must first understand the exact meaning of “trust” within the legal world. This is a special term that refers to a financial relationship where one person (the trustor) grants someone (the trustee) a legal right to manage assets on their behalf. Trusts can be irrevocable (meaning they cannot be cancelled) or revocable (meaning they can be reversed at virtually anytime).
The most common example of this is a trust fund. Money is placed into a bank account for the benefit of one or more parties. However, beneficiaries cannot simply go in and take out money until they meet the criteria you set forth in the trust. Not only does this protect your assets, but it also guarantees your wishes are fulfilled.
It is important to note that, despite the above example, not every trust is held in a bank or with a financial institution. A relationship between, say, you and your accountant, meets the same definition. The same is true even if the person you assign is your adult child, your spouse, or even just a good friend.
Why Have a Revocable Trust?
Revocable trusts offer many of the same benefits as wills – in fact, nearly all of the same designations can be outlined within them. However, the fact that your loved ones won’t need to go through the probate process is significant. You gain the same peace of mind without needing to follow expensive and complex legal guidelines.
There are other reasons someone might choose a trust over a will, regardless of whether it is revocable or irrevocable. Primarily, trusts enshrine the privacy of both the trustor and their loved ones. The moment a will enters probate, it instantly becomes a public record – and that can attract the wrong attention.
Advantages:
- Avoiding probate saves time, money, and stress
- Keeps assets and funds private from prying eyes
- Ensures your loved ones are cared for upon your death
- Trustee becomes guardian/conservator if you are incapacitated
- Effective as a temporary stop-gap measure in times of crisis (COVID-19)
Disadvantages:
- Offers almost no distinct tax benefits
- Fewer asset protections than an irrevocable trust
- May be more expensive to set up than a simple will
- Full transfer of assets can only happen after death
COVID-19 is having an unprecedented effect on society’s willingness to talk about end-of-life arrangements and plan for uncertain futures. That really just comes down to common sense. It’s difficult not to think about what might happen after you’re gone when there is a risk of contracting such a significant illness.
In terms of preparing for worst-case scenarios, a will is the fastest and easiest fix. They can often be set up in only a few short hours. This is ideal for people who find themselves in urgent need of arrangements (e.g., they are already sick). It is even possible to create your own will right at home with a DIY kit.
It should be noted that at-home will kits are rarely recommended. They can be very difficult to enforce in court. Furthermore, they are rarely filled out and completed correctly by the people who use them. Still, if your need is extremely urgent, it may be better to fill out a DIY will than no will at all.
Revocable trusts, on the other hand, take significantly more time to create. They can also be more expensive – a drawback during a time when some have virtually no income at all. Some find them difficult to navigate and set up, especially if they have a very large estate or a long list of beneficiaries.
This essentially comes down to an issue of time + money: can you afford to wait for end-of-life arrangements? If not, a revocable trust might not be right for you.
There are benefits, too. The fact that a revocable trust allows your trustee to step in as your guardian or conservator if you become incapacitated matters. Many people who contract the virus – even those who are young and otherwise well – become severely sick for weeks or months at a time. Having a trust in place could ensure your loved ones and assets remain protected while you are sick.
Lastly, there is the issue of local court backlogs. Right now, it can take weeks or months to even be assigned a court date for non-urgent issues – and that might mean your loved ones are forced to wait to execute your will for the same length of time. This isn’t likely to change any time soon, even if stay-at-home ends. For this reason, a revocable trust might be more reliable at the moment.
Conclusion
The most important takeaway, here, is that you should never leave these decisions to the last minute – and you shouldn’t take them lightly, either. Whenever possible, consult with an attorney who can help you navigate this process successfully. The time and money you’ll spend will be well worth it once you have that peace of mind.
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