An expansion from Do I Need a Will?
I have done a series of articles explaining estate planning on a spectrum from simplest and cheapest to more complex and more expensive. Generally, that spectrum flows from planning how assets are owned so that they will pass on death with beneficiary designations, payable on death designations and joint tenancy with the right of survivorship, to wills and trusts. Wills are more expensive than relying on the way ownership of property is held so that the property will pass on death, and Trusts are more expensive than Wills. In this article, I am going to differentiate between simple Wills and more complex Wills.
Many people come in to meet with me stating their desire for a “simple Will”. A client who makes that request is usually concerned about cost and are trying to keep things simple and cost effective. Those considerations are always important when doing estate planning, but they should be weighed against the needs, circumstances and desired goals that a client wants to accomplish. Sometimes, simpler is better, but sometimes it is not.
My rule of thumb is “to keep things simple unless there is a good reason to complicate them”. Starting with the premise of keeping it simple makes sense. We should never jump to complex or expensive options as a starting point. Instead, we should start with the simplest option and explore whether there are any (good) reasons to complicate the estate planning in order to accomplish specific goals or to address specific concerns. We will explore some of those goals and concerns in this article.
First, we need to define what a “simple Will” is. A simple Will is a Will in which the assets of the estate are left “outright” to the beneficiaries of the estate. At the end of the administration of a simple Will, all of the assets that remain in the estate (after paying bills, creditors, costs, taxes, etc.) are distributed outright to the named beneficiaries. The Executor’s job is done at that point, and nothing further is needed to be done for the administration of the estate once the estate is closed.
Note that this is my definition of a simple Will. Others might define a simple will differently. I have seen Wills that are two (2) pages long. My simple Wills are five (5) pages.
Also, note that simple Wills can actually be complicated by the instructions for distribution to beneficiaries. I have spent much more time on “simple Wills” with detailed distribution instructions than I have one a “complex Will”. But that is a topic for a different article.
The difference that turns a simple Will into a complex Will is the distinction between outright distribution and distribution “in trust”. Outright distribution is described above. When the final bills are paid, the probate process is completed, and the estate is ready to be distributed, the estate is distributed “outright” directly to all the beneficiaries.
A complex Will provides for distribution of some or all of the estate assets “in trust”. That means that the assets are handed over to a trustee who takes the baton and carries the oversight of the assets forward under trust terms that are contained in the Will. The trust terms are a layer of complexity if you will. Through the trust terms, the Will continues to provide oversight and control over the assets in the estate after the probate estate is closed.
The probate process is a court process that provides for the administration of an estate according to the terms of a Will (if there is one). It isn’t the purpose of this article to describe how the probate process works. You can read more about probate and why a person might want to avoid probate in other articles on this blog.
A trust created in a Will is called a “testamentary trust”. A testamentary trust springs into effect after a person dies at the time when the probate estate of the decedent has been completed and is being closed when the assets are distributed from the probate estate to the trustee named in the Will. It really is like passing a baton. The executor of the Will essentially passes the baton to the trustee.
The “baton” that gets passed is some or all of the assets of the estate. Those assets might be passed in the form of one trust for one or more people or multiple trusts for multiple people, and the Will contains the instructions and directions for the trust(s). In other words, the Will contains the terms of the trust, creating the instructions for how the trustee is to carry out the oversight and control of the assets “in” the trust(s).
Testamentary trusts usually end at some defined point in the future, but they could carry on indefinitely, depending on the terms of the trust described in the Will. The trustee holds title to the assets in trust for the benefit of the named individual(s) (the named beneficiary or beneficiaries of the Will). A trustee is a fiduciary whose obligation is to use the assets in the trust and handle the administration of the trust for the benefit of the beneficiary (or beneficiaries) according to the terms of the trust.
The most common circumstance in which a complex Will is used is when there are minor children. Minor children cannot own or control or make decisions about the property on their own. Until they become legal adults (at age 18), a parent or guardian or trustee is required to control the assets of a minor.
There are alternatives to leaving the property in trust for minors. Obviously, a surviving parent can provide that control. So could a guardian. If a Will leaves assets outright to a minor child, a parent or guardian, however, would need to establish a court guardianship in order to have the legal authority to control assets left in the name of a minor child. A Will that establishes a trust with a parent, guardian or another person in control as trustee avoids the need for a guardianship, which is a court process, requiring an attorney and the oversight of a judge.
Another alternative is to direct the distribution into a Uniform Transfer to Minors account. A will can specify who the custodian of the account will be, but the rules that govern UTMAs are laid out in the UTMA stature. This is a simple alternative to outright distribution to minors, but it doesn’t allow the kind of control a trust does.
This is where trusts shine. A Will can detail how the trustee is to handle the assets in a trust for the benefit of a minor. Those details can allow the trustee discretion to make the assets available for specific needs and purposes. The Will can allow the children unfettered access to funds when they reach certain ages, milestones in their life or on other terms that are tailored to each child. A trust provides maximum control and allows that control to be tailored to each child.
Going back to the adage of keeping things simple unless there is a reason to complicate them, a simple Will should be fine unless there is a need or desire for more control over the distribution of the estate. Distributions should be made outright to the beneficiaries of the estate unless there is a reason to provide for the ongoing oversight of the assets by a trustee. Those reasons might include minor children, disability, drug or other addictions, immaturity or lack of financial acumen, among others.Kevin G. Drendel Drendel & Jansons Law Group 111 Flinn Street Batavia, IL 60510 630-523-0543 630-406-6179 fax [email protected] foxvalleyestateplanning.com