Back to Basics: Wills & Revocable Trusts

June 7, 2023 | Patricia C. Marcin | Trusts & Estates

I am often asked about the difference between wills and revocable trusts, so I thought it important to explain the purpose of each.

Wills and revocable trusts basically do the same thing – each is a document in which you give away your assets to your beneficiaries upon your death. Both can be revoked and changed whenever and as often as you desire. In fact, a revocable trust is also known as a “will substitute.”

Under a will, you can only give away assets that you own in your name with no beneficiary designation. These are called “probate assets.” Through your will, you cannot give away assets that are held jointly with the right of survivorship or that have a designated beneficiary. A revocable trust can only dispose of assets that are owned by the revocable trust. When using revocable trusts, it is important to sign what is called a “pour-over” will, which directs the executor to transfer all of your probate property to your revocable trust upon your death; the probate assets are then added to (poured over to) the trust’s assets. The trustee of the revocable trust then distributes the trust property as directed in the revocable trust document.

If you intend to put all your assets in a revocable trust during your lifetime (whether to avoid probate or because of difficult family issues), it is still important to have a pour-over will. That way, any assets which you had forgotten to transfer to the trust are transferred at your death and disposed of according to your wishes set forth in the revocable trust (rather than in accordance with state law).

For various reasons, you may also create a “dry,” unfunded revocable trust, into which your probate assets are “poured” upon your death. In this case, the assets remain in your individual name during your lifetime. One reason to create an unfunded revocable trust is to make it easier to change trustees of trusts created for your loved ones upon your death. Many grantors want to make things as easy as possible for their spouses and descendants when dealing with their trusts, including removing, replacing and adding trustees. Trustees can be changed under a revocable trust with a simple writing, whereas trustees of trusts created under a will can only be changed by obtaining court approval, which is a longer, more costly process.

The decision to pass your assets onto your beneficiaries by use of a will alone or by use of a pour-over will and revocable trust combined depends on your personal circumstances. In any case, it is important to have a legal  s document that directs the disposal of your assets upon your death. Otherwise, the disposition of your estate will be dictated by New York State law. Of course, it’s also important to plan for the purpose of saving estate taxes as well.

This article appeared in the June 2023 issue of Stroll Lloyd Harbor.

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