Many people wonder whether they should have a last will and testament or a revocable living trust established for estate planning purposes.  Every person’s situation is different so what’s best for one person may not be the best for another.  Some people just need a will, others will need a trust, and some may require both.  In some situations, a living trust can be used as a substitute for a will, and visa versa.  However, I wanted to set forth the pro’s and con’s of a will versus a revocable living trust.

Probate Avoidance

The most traditional reason given for the use of a revocable trust is probate avoidance.  However, in Indiana, an unsupervised administration of an estate is possible and so there may not be much benefit to avoid probate as compared to some other states that may require a court-supervised estate.  With the exception of having to prepare and file initial pleadings and a closing statement with a probate court, which doesn’t require very much time or expense, a personal representative’s functions in administering an unsupervised estate is not all that different the the functions a trustee of a living trust have to perform.   In both situations, the property will need to be inventoried, managed, sold and/or distributed and necessary tax returns will have to be prepared.

Avoidance of Ancillary Administration

If you own real estate in a state other the Indiana, it will likely be necessary to commence a separate ‘ancillary’ probate administration in the other estate, if such property is administered pursuant to a will.  If you transfer out-of-state real estate to a revocable living trust, that may avoid the need for an ancillary administration.  This may be best for residential real estate, however, and can also be useful for property management for a property you may have out-of-state.  Although a trust would also avoid ancillary administration in the case of business real estate, in some cases, the owner may be better served by transferring such business real estate to an entity that will provide some insulation from potential creditors’ claim that may not be available using a revocable trust.

Avoidance of Guardianship and Management of Property

As stated above, a living trust can be used for purposes of managing property by a person who may not be able or willing to manage the property.  As an example, it may be useful for elderly people who, even if competent, may not feel up to the task of managing real estate.  A power of attorney can also potentially accomplish this purpose, a power of attorney, paired with a living trust, can then accomplish all of those goals while still avoiding probate.

Ease of Modification

A living trust is easier to amend or modify than a will.  A revocable living trust can be amended as often as one wishes and the formal requirements for amending it are simple: it just need to be in writing and signed by the grantor; (if the amendments alter the trustee’s duties, then it should also be signed by the trustee).  The procedure for executing a new will or will supplement/amendment, (called a codicil), is more complicated and time consuming.

Timing of Distribution

There is a 5 month bar against distribution of an estate that applies in a probate proceeding.  A revocable trust, on the other hand, is not subject to the 5 month bar and so, theoretically, the assets in a revocable trust could be distributed on the same day as the grantor’s passing.

Choice of Trust Situs

There may be instances where a person wants to choose the situs, (or the place of legal jurisdiction), and the law under which assets of a trust are administered.  To illustrate, say a person is domiciled in another state, but maintains a part time residence in Indiana and would prefer to have his/her assets administered by an Indiana resident who is not a family member.  The law of the other state may prevent that person from serving as executor of that person’s estate, (pursuant to a will).  This problem can be avoided by transferring the assets to a living trust that provides the trust situs is Indiana and so will be governed by Indiana law.

Tax Advantages

You may have read that there are some tax advantages of a trust over a will; however, that is not the case.  Regardless of how you structure a living trust, any tax advantages that can be accomplished using such a trust can also be accomplished by using a will.  To the contrary, a living trust has a requirement to use a normal calendar year for tax purposes, while an estate pursuant to a will is not required to use the traditional calendar year.  As a result, there are certain estate tax deferral possibilities that are not available to a trust.

These are just some of the pro’s and con’s of a will versus a living trust.  The advantages and disadvantages of each are quite extensive.  As such, if you are thinking about having a will and/or a trust drafted to help plan your estate, it is important that you contact a local attorney to see which is best in your specific situation.  Contact Adam S. Lutzke Law Offices at (317) 577-3888, or at [email protected], and we can discuss your specific situation to see what documents would best serve your interests.

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