Trust or will? How to navigate what’s best for your family

Two types of legal documents can outline your wishes for after you die, yet few people understand the pros and cons of either a revocable living trust or a will.

Generally, a revocable living trust or a will can provide instructions on how to distribute assets after death. They have differences, though, and advantages or disadvantages depending on your needs.

To understand some concepts better, various tips were offered by Lynn St. Louis, attorney and founder of Elder Law Group PLLC in Spokane. BECU, a credit union, and Morgan Stanley have articles outlining a few differences, as well.

Revocable living trust

This type of trust created while you’re alive isn’t just for ultra-wealthy families, said Morgan Stanley. It can be a guide from older parents with special-needs children or set up a legacy of donations to charities.

Another advantage is privacy because assets held in a trust remain confidential after a death. A conventional Last Will and Testament becomes a public document upon death in the court’s probate process.

As one caution, St. Louis said you must be willing to keep this trust type maintained. An estate planning attorney can help because you’ll have to update any new assets or changes over time, such as if you buy property or change bank accounts.

“The revocable living trust vehicle might be right for you if you follow all the instructions and are mindful to keep this vehicle up-to-date with any added assets,” St. Louis said. “If you’re doing it yourself online, just forget it; you’re going to do it wrong.”

A revocable living trust only controls those assets named in the trust, BECU said. A common mistake is failing to transfer ownership and titling of real estate, finances or anything similar into the trust name. If undone, the trust has no authority over assets that weren’t transferred. It makes them subject to probate.

“A revocable living trust is an estate planning document that is intended to manage all of your assets now while you’re alive, if you become disabled in the future and when you’re gone – all within the language of what the revocable living trust says,” St. Louis added.

“A will frequently, though not necessarily, involves the probate process.”

A revocable living trust can be a better path if you own properties in various states, otherwise requiring probates in all jurisdictions. Another consideration is that a will doesn’t offer protections during your lifetime if you become incapacitated.

Advantages to a will

If you’re married and concerned about long-term care costs eroding a nest egg for a surviving spouse, a will offers better protection in Washington state, St. Louis said. It works similarly in Idaho, but, in this scenario, the will should include instructions to have a testamentary trust set up upon the death of one spouse, she said.

The testamentary trust isn’t created until somebody dies because the will has no effect until then. Probate gives it effect, after the will is filed with the court and an executor is appointed, then this type of trust is funded, she said.

A probate costs money, just as estate planning does or each time you talk to a lawyer, she said. “But it’s a cost-benefit analysis” when considering protection of assets.

“Our state says if you want to protect assets for your spouse, so they’re not counted against them if they ever need the state to pay for their long-term care, you have to do that through a will,” St. Louis said. “You cannot do it through a revocable living trust. It’s super clear.”

In an example of a $1 million estate and the husband dies first, if the surviving spouse later needs expensive memory care, she’d never have to spend down to “the nothing level, which is $2,000,” St. Louis said.

“She gets to keep your husband’s half – the $500,000 – in a trust. Then when she is otherwise eligible – she spends down her share – she can be eligible for the state to pay for her care even though everything that was her husband’s share, the $500,000, is set aside in a trust for her. That means she’ll never be impoverished.”

Another advantage of a will is it allows you to name a guardian for any children, while a revocable living trust doesn’t, BECU said. However, you can take care of this if a “pour over will” is drafted with the trust.

A will has a plus, as well, in its simplicity, St. Louis added.

“With a will, it’s not quite one and done, but it’s closer to it because you say, ‘I want everything to go to my spouse, and then to my kids.’ It doesn’t matter what the asset composition looks like. You don’t have to continually take care of it by making sure the assets are in the trust.”

Probates in Washington and Idaho are relatively straightforward, St. Louis said. That’s different for residents of California, where probates are expensive and based on a percentage of the estate. In California, a revocable living trust works better to protect assets for a surviving spouse against long-term care, she said.

That’s another tip, to make sure an attorney is licensed in your state of residence and understands its laws. “I’d take it one more step and ask, ‘Do you know how to protect assets against long-term care costs?’ ” St. Louis said. About 70% of people ages 65 and older need some form of long-term care before death, though it might be short.

Costs and where to go

St. Louis urges that people do research, read articles and look online for comments about a law firm. Many firms offer one complimentary consultation, St. Louis said, so you can ask questions about experience levels while getting a feel for the firm.

Business owners might need a law firm with that expertise. “You’ve got to look for what’s the right fit for you,” St. Louis said.

The cost for an estate plan and its documents varies widely, she said. Online, it can be $50 or less, and some attorneys might charge $500, St. Louis said, but lower-cost services might lack expertise, consultation and time.

St. Louis said a common range is $2,500 to $7,500 for estate planning and a package of legal documents. People typically need durable power of attorney and a health care directive along with the will or trust document.

A single person with a modest estate might spend $2,500 to $3,500 for estate planning documents, she said. If you’re married, depending on the complexities and documents needed, the range might be $4,500 to $8,500.

For low-income residents ages 60 and older, free estate planning services are available through Gonzaga University Law School’s Elder Law Clinic. Separately, people’s 401(k) assets aren’t governed by a trust or a will, but rather by beneficiary designations after you die, St. Louis said.

“The most important thing is that someone understands what their estate plan does, and they feel comfortable with the guidance they’re getting,” she said. “It’s an investment of time, money and effort. The benefit far outweighs all of that. The biggest benefit is the peace of mind.”