Will vs Trust

Quite often I am asked by clients:   What is the difference between a Will and a Trust?  They also inquire as to the advantages and disadvantages of each.  Below are some of my responses.

SIMILARITIES:

As a start, let’s take a look at how they are similar.   Both a Will and a Trust are designed to make disposition of your assets at the time of your death in the manner of your choosing and, in each instance, you appoint a person (Personal Representative or a Trustee) to handle or wind up your estate.    It is how these assets are disposed of, the Court involvement (or not), the costs, the privacy (or lack thereof), and the related procedural steps that must be taken that differ.  At the end of the day, the ultimate recipients or beneficiaries should be the same, there should be a step-up in basis in the value of property to the date of death values in each instance, and there should not be any tax uncapping as to real property if it is transferred to a person within a certain degree of relationship to the decedent.  Also, there is no change in the amount of any federal estate taxes that might be due, although this rarely comes into play for most individuals given the almost $5.5 million dollar threshold before estate taxes might be an issue, which figure can be effectively doubled for a married couple under portability concepts.  Finally, in both instances it is generally wise to publish a Notice to Creditors to File Claims so as to start the running of the claims bar date.

PROBATE and PRIVACY:

A Will must be probated in order to have an individual appointed by the court to act as a representative of the estate.  This person, formerly known as an executor, is called a Personal Representative, and has fiduciary duties to properly handle the estate.  Typically, an individual names a personal representative in their Will (usually a spouse and then one or more of their children).  While most probate matters are handled by way of unsupervised proceedings, with little Probate Court involvement, the Court could choose another person to act as Personal Representative or, if cause exists, remove the named Personal Representative.  The Personal Representative must pay a filing fee to the Probate Court to commence proceedings and then must also pay an inventory fee to the Probate Court which is based on the value of the assets to be probated.  The inventory shows all of the assets owned by the decedent at the time of his or her death.  As all of these documents are available for public inspection, there is no privacy afforded as to the assets on hand  or to his/her beneficiaries.   The Personal Representative must file various documents with the Probate Court in order to wind up the estate and fulfill their fiduciary duties, all the while being subject to Probate Court supervision, in some fashion.

There is generally no need for Probate Court involvement when you have a Trust, as long as the Trust has been properly funded (i.e. the decedent has transferred his or her assets into the name of the Trust).  Likewise, there is no need to seek the appointment of an individual to act as Trustee, as the Trustee is already named in the Trust and simply must file an Acceptance of Trust and serve it upon interested parties.  As the Probate Court is typically not involved, and most Trusts do not have to be registered, none of the decedent’s assets are open to public inspection and there is much more privacy, as only the Trust beneficiaries are entitled to a copy of the Trust document.  As the Probate Court is usually not involved, there is no need to pay a filing fee to the Court or an inventory fee.  A Trust beneficiary is also entitled to an inventory of trust assets, an annual account, and a final accounting of trust assets.  If this is not supplied or is not complete, they can then invoke the powers of the Probate Court and file a Motion to have the Trustee removed and replaced.  These protective measures still exist, although they are rarely necessary.  Likewise, if some assets have been omitted from the Trust, these can generally be assigned over to the Trust by way of what is called a “pour-over” will that, like the name sounds, essentially pours omitted assets over into the Trust.  If the assets are not of great value (say less than $22,000), this can be done by way of a Small Estate proceedings, where a probate estate is opened, there is an order of assignment to the Trust, and the estate is then immediately closed. The estate planning attorneys at Damon, Ver Merris, Boyko & Witte, PLC are here to assist you in these proceedings.

COSTS:

A Will is generally much less complex and simpler document to draft and the costs are generally much lower than the cost for drafting a Trust.  However, when you factor in the filing fee and inventory fee that would have to be paid to the Probate Court to probate an estate, in many instances these costs outweigh the additional legal fees one might have to pay to set up a Trust in the first place, and properly fund it.  It is somewhat of a takeoff on the old Fram oil filter ad which used to say:  “You can pay me now or pay me later”.

CHOICE OR NO CHOICE:

To sum up, there is no “right” way to dispose of your assets at the time of death. Tthis turns on each individual’s personal circumstances.  For some, keeping matters out of probate and the desire for privacy is paramount. For those individuals a trust may be best.  For others, they do not want to incur the costs of drafting and funding a trust, or do not have enough assets to warrant such expense, and are fine with their assets having to be probated.  Whatever your situation, unless you take steps to deal with the disposition of your assets at the time of death, the laws of the State of Michigan will make such determination for you (and you may not like the results).  By making no choice, this is effectively making a choice to follow the laws of descent and distribution of Michigan.  Do you know what they provide?  Do you know where your assets would go and who would be appointed to wind up your affairs?  Should you need assistance with any of your estate planning matters, please contact the experts at Damon, Ver Merris, Boyko & Witte, PLC.  We will help you set your mind at ease and develop a plan that is right for you.  We are here to help. – Larry A. Ver Merris / August 4, 2017