Ethan R. Okura
Hawai‘i Herald Columnist
In Shakespeare’s play, “Hamlet,” when the forlorn, young prince is debating whether to end his own life, he asks the question: “To be or not to be?” The question should have been whether Hamlet should use a last will and testament or a living trust to organize his affairs before he “shuffled off this mortal coil.”
What is Estate Planning for, Anyway?
Ultimately, estate planning does two primary things: (1) It provides a way to take care of you when you’re incapacitated and can’t do so yourself; and (2) it provides an orderly way to distribute your things after you’ve passed away. There are other aspects to estate planning such as protecting your assets from lawsuits, divorce and other threats; and providing a legacy for your children, grandchildren or other loved ones by protecting the assets for them after you pass away. But we won’t get into all of that today. Let’s just start with the idea that the fundamental points of estate planning come down to those two goals.
Will vs. Trust
Most people have heard of a last will and testament and a living trust as potential tools to use in estate planning. What is the difference between a will on the one hand, versus a living trust on the other? Before being able to explain the differences between a will and a trust, it’s important to recognize what they have in common.
What They Have in Common
Both a will and a trust are (usually) revocable so you can change your mind and rewrite them as often as you want. They both name your heirs — beneficiaries who will inherit your assets after you die. Both a will and a trust designate the person (“personal representative” or “successor trustee”) who is supposed to manage your estate after you die. This personal representative or successor trustee will identify and gather your assets, pay off your final debts and distribute anything that’s left to your beneficiaries.
If you were to pass away tomorrow, do you know what would happen to your “things?” Most people care about what happens to their possessions when they die. And yet, 58% of people don’t even have a will or a trust. How do you know which is right for you?
How are They Different?
The biggest difference between a will and a trust after you die: the will requires a probate court proceeding for your estate. In other words, a judge gets involved to oversee the actions of your personal representative and makes sure that the wishes in your will are carried out properly. As you may know, getting a court involved takes time and effort, and typically requires expensive legal fees to hire an attorney to help settle your estate. Another disadvantage of a will is that probate becomes part of the public record, so anyone who wants to can look up the court records and see your will, what you owned and who got what. Most people prefer privacy regarding their affairs and prefer to avoid that possibility.
Also, a trust can continue on after you die to hold the assets for your beneficiaries until they reach a certain age, or until they accomplish a certain goal (e.g., graduating from college). Or it can hold those assets as long as the beneficiaries aren’t addicted to drugs or alcohol. A trust could also hold the assets if the beneficiaries get a prenuptial agreement signed before marrying, or any number of other conditions that you might want to put on the distribution of assets.
Although avoiding probate is one of the biggest advantages of the trust after death, there’s an even bigger advantage during life: avoiding conservatorship. Conservatorship is a court proceeding, similar to probate, but it happens while you are alive and incapacitated. If your assets are in your individual name and you have only a will to distribute those assets when you die, the will doesn’t take effect until you die.
The trust takes effect right away, so even though you are the initial trustee to manage the trust assets and it doesn’t feel like anything has changed in your ownership of the assets, if you become incapacitated, your successor trustee can step in without having to get the court involved. This successor trustee could be your spouse, children, best friend or bank (etc.). If your assets are not in trust, your family member or loved one might need to go to court to get the judge to appoint them as a conservator to manage your assets to take care of you during your life while you’re incapacitated. This flexibility is, in my opinion, the biggest advantage of a trust over a will.
Of course, if you have very limited assets, you might not need a trust; a will might be sufficient. The big takeaway from all of this is that estate planning is a very personal process and should be tailored to fit your circumstances, family situation, assets, needs and desires. There is no one-size-fits-all estate plan that is appropriate for everyone. That’s why it’s important to see an experienced estate planning attorney to design and draft the best plan for you!
© OKURA & ASSOCIATES, 2020
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Ethan R. Okura received his JD from Columbia University in 2002. He specializes in Estate Planning to protect assets from nursing-home costs, probate, estate taxes and creditors.
This column is for general information only and is not tax or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate-planning specialist.