Good afternoon, my name is Max Barger. I head the trust and estates practice at Ackerman Brown, a boutique law firm with a big heart.Do you need a Will or a Trust?I help people plan their estates. When I ask them about their goals for estate planning, many say that they want a Will. Generally, that simply means that they want to get their affairs in order, and “getting a Will” is synonymous with estate planning. Other people come in with a very strong opinion about using a Trust as the foundational document for their estate plan. They have read an article or a book pointing out the benefits of Trusts, and they use that information. Still, other times the people I meet with haven’t decided what they prefer to use in their estate plan. They have heard of Revocable Trusts, but don’t really understand the difference between a Will and a Trust. Certainly just about everyone has heard of a Last Will and Testament.There is a lot of information floating around about Wills and Trusts. The purpose of this discussion is to evaluate the benefits and drawbacks of both Wills and Trusts, so you are armed with good information so that you can make a decision. To be honest, every lawyer will have a bias regarding the use of Wills or Trusts; sometimes a strong prejudice one way or the other. Both are right, there isn’t a wrong answer. Generally it is more about the practitioner’s education and experience.We should probably start out with a little background. To fully appreciate the differences between Wills and Trusts, you need to understand the process through which we are trying to navigate. And, I think it all boils down to…
We want to pay close attention to your and your family’s liquidity needs at these different stages – life as it is now, during incapacity and at death.Estate Planning is going to provide for the smooth transition of management.
So, Title, the way the asset is held, has a great impact on the management of your affairs and estate during your incapacity and after you have died. In many cases, upon death there will be some assets that pass through probate, others that avoid probate with beneficiary designations or the operation of law, and possibly there are assets titled to trust that pass according to the terms of a trust.Probate assets pass to beneficiaries of the deceased person’s Will or to the heirs at law if there is no Will.The designated beneficiaries or surviving joint tenants receive each individual piece of property with these designations or titling.Now, who pays the funeral bill? The cost of the last illness? The outstanding debts, mortgage, taxes? The cost of administration of the estate and wrapping up the affairs of the decedent?The law places that obligation on the probate estate, and the personal representative (or executor) of the estate has the responsibility to make sure all this is taken care of. So, consider… what if the personal representative doesn’t have enough assets to pay everyone? What if the beneficiaries named in the Will are different than the beneficiaries designated on the life insurance or retirement plan? You can quickly see how contentious and litigious administration of a deceased person’s estate can get. Some of the ugliest fights occur among family members who got along famously, before money was involved. The loss of a loved one – particularly a parent – can bring out a spectrum of emotions, old patterns of behavior from childhood, hurt feelings, impatience and downright contentious situations. While this is traditional, it puts into place a poor system where there are too many decision makers who do not have the same interests – economically and emotionally.A recent Virginia Supreme Court case highlights the problem… the case pitted a second wife, the beneficiary of the residence, against the children of the first marriage, the beneficiaries under the Will. The question, who paid the mortgage? It wasn’t clear in the Will, and the residence passed by operation of law. What do you think the Supreme Court decided? …. Worse yet is that the end result may be different under Maryland law, or District of Columbia law.Alternatively…
When all of a person’s assets point to his or her revocable trust, then the trustee is in control of all of the assets, and all of the affairs of the decedent. It allows for the centralized management of the estate.In cases where there are multiple beneficiaries, no one gets accidentally disinherited. By the terms of the trust you can pay all the expenses, each beneficiary sharing a proportional share of the cost. And a single beneficiary cannot be a hold-out, refusing to pay a proportional share.The trustee controls the assets during the term of the administration. After all is wrapped up, the trustee may divide the remainder proportionally among all of the beneficiaries.In the case of our second wife and children from the first marriage, if both the residence and the house were owned by the trust, and the trust specified that all obligations should be paid, then the result is clear… and we avoid the cost of litigation. Often times the emotional cost of litigation – the broken relationships - is even greater than the sum of the invoices.
I’ve given you a list of some of the pros and cons. While it may seem like a lot of information – and certainly it is a good start - this list is not exhaustive. Hopefully, it is helpful.
Finally, a quick word on what appropriate planning looks like, and when should it occur?