Are Revocable Trusts better than Wills?
As far as content goes, wills and revocable trusts (which are also called or revocable living trusts or living trusts) can be made to do the same things. Both can contain provisions for estate tax planning, and both can create a trust to protect a spouse or child. But wills and revocable trusts work in different ways. It is from these differences that the most significant advantages and disadvantages of each arise.
An important note. Anyone who has a revocable trust also needs a will. Usually, the wills at accompany revocable trusts are short documents called pour-over wills. When I talk about wills vs. revocable trusts, I'm talking about having a will alone vs. having a revocable trust and a pour-over will.
Issue: Managing Assets During Incapacity
Winner: Revocable trust.
A will does nothing to help others manage your assets during your lifetime. A revocable trust, on the other hand, enables a person you choose, called a trustee, to manage the assets in your trust if you can't manage them yourself.
A power of attorney, which you can have in addition to a will and/or a trust, allows for management of any assets you personally own. (So if you have a revocable trust, that's just the assets that aren't in your trust.) The person who does the managing under a power o attorney is called an agent.
So, if a power of attorney does the same thing, why bother with a trust? Trustees don't seem to run into as many problems getting things done. We could speculate as to the reasons and debate the merits of my claim, but that is what I have observed.
Issue: Privacy vs. Court Supervision
Winner: For privacy, revocable trusts. For court supervision, wills.
Probate, which is the process that gives a will legal effect, makes wills (yes, the whole will) part of the public record. With a revocable trust, the details remain private.
While many people prefer to limit the public's access to certain information (like who is disinherited and who-gets-what), the publicity and supervision inherent in the probate process can be useful to some.
Winner: It depends.
Generally, revocable trusts cost more to set up and maintain, but wills can end up costing more at your death.
The initial cost of a trust-based plan will probably be higher than the cost of a will-based plan. Lawyers seem to charge more for revocable trusts, and assets have to be transferred to revocable trusts. The asset transfers can involve deeds and specialized beneficiary designations.
Wills usually cost less to create. Part of estate planning is coordinating ownership of your assets with your will, and some asset transferring and changing of beneficiary designations may be necessary; however, the asset transfers generally aren't usually as numerous without a trust.
Wills have to be probated, which is how wills can end up costing more than revocable trusts in the end. The numbers depend primarily on the court fees, probate taxes, your personal representative's fee, and the attorney's fee. Some of those fees also exist for trusts--trustees and attorneys for trusts generally also require payment.
Winner: It depends on whose effore we're talking about.
Generally, wills are less of a hassle for their creators, but revocable trusts are less work for heirs. Wills are easier for will-creators because they’re usually almost done when they sign the documents. The creators of revocable trusts, on the other hand, generally have to make a lifetime commitment to making sure the trust owns all of their assets.
Heirs seem to find dealing with a trust easier than dealing with a will, primarily because of the court involvement in the probate process. (Again, this is my observation).
Issue: Tax Savings
Your estate tax bill is the same regardless of whether you have a revocable trust or a will. Let me say that another way: Having a revocable trust does not automatically reduce any of your estate or income taxes! Your revocable trust or your will can include provisions to minimize, delay, and shift around various tax liabilities, but neither wills nor revocable trusts necessarily even address taxes.
Issue: Creditor Protection
Neither wills nor revocable trusts afford the person who makes them any protection from creditors.
So, are revocable trusts better than wills?
Not necessarily. A revocable trust (or a will) may make more sense under a given set of circumstances, but (1) it's always a matter balancing pros and cons, and (2) you have a choice.