When planning for the future, it’s essential to understand the differences between a Will-based estate plan and a Revocable Trust-based plan. Both options have unique benefits and potential drawbacks, depending on your needs and circumstances. Here’s a breakdown of each to help you make an informed decision.

Revocable Trust: Ensuring a Smooth Transition

A Revocable Trust can be a highly effective tool to facilitate a seamless transition of assets upon your death or incapacity. One of the primary advantages of a Revocable Trust is that assets titled in the name of the Trust avoid the probate process.

What Is Probate?

Probate is a court-supervised procedure where an Executor or Administrator submits the Last Will and Testament for approval and must account to the Clerk of Court for every financial transaction made on behalf of the estate. Probate can be time-consuming and costly, with fees reaching up to $6,000. In North Carolina, probate fees are calculated at $0.40 per $100 of the estate’s gross value, with a maximum cumulative fee of $6,000. Note that the “gross estate” in North Carolina normally does not include the value of real estate owned by the decedent unless the Executor or Administrator is required to sell the real estate.

Avoiding Probate and Guardianship with a Revocable Trust 

A significant benefit of a Revocable Trust is that it allows the successor Trustee to manage trust assets immediately upon your incapacity, without the need for a court hearing to appoint a guardian. This often provides more effective incapacity planning than a Durable Financial Power of Attorney, as financial institutions may be more inclined to recognize the authority of a successor Trustee more readily than a financial agent under a power of attorney.

Privacy Protection 

Unlike a Last Will and Testament, a Revocable Trust remains private and confidential, not subject to public scrutiny. Anyone can access a copy of a Will from the Clerk’s Office for a small fee, but a Revocable Trust stays within the family.

Are There Any Downsides to a Revocable Trust? 

While there are many advantages, there are a few considerations to keep in mind. A Revocable Trust typically requires the preparation of a more extensive legal document and more legal advice from your attorney, which will increase legal fees. Additionally, you must re-title certain assets and investment accounts into the name of the Trust, which may take time and effort.

Last Will and Testament: Simplicity and Specificity

A Last Will and Testament governs the distribution of a decedent’s probate assets. It can also designate the guardians for minor children.

When Is a Will Preferable? 

A stand-alone Last Will and Testament may be the better choice for individuals whose wealth is primarily in assets that already pass outside of probate, such as retirement accounts, 401(k)s, pension plans, and life insurance policies. These are controlled by the designated beneficiaries, regardless of the terms of the estate planning documents, unless the estate is named as the beneficiary or there is no designated beneficiary. Similarly, jointly held assets with rights of survivorship bypass probate. In North Carolina, real estate generally does not go through probate unless devised to the estate or if the Executor or Administrator must sell the property.

If most of your assets are likely to avoid probate anyway, a Last Will and Testament could be a simpler and more straightforward option.

Preference for Simplicity 

Some clients prefer the simplicity of a stand-alone Last Will and Testament and may not want to deal with the complexities of a Revocable Trust. This is perfectly understandable.

Do You Still Need a Will with a Revocable Trust?

Even with a Revocable Trust, it is standard practice to have a shorter version of a Last Will and Testament, known as a “pour-over Will.” This document ensures that any remaining probate assets outside the Trust are transferred (“poured over”) into the Trust, consolidating everything into one unified plan. Although this pour-over Will becomes a public document, it generally only states that all remaining assets should go into the Revocable Trust.

Conclusion

Choosing between a Will-based plan and a Revocable Trust-based plan depends on your unique situation, the types of assets you own, and your preferences for privacy, complexity, and cost. Consulting with an estate planning attorney can help you determine which approach is best for you.

Written By Laura C. Rivers, J.D., LL.M.