Why Having a Will Alone Isn’t Enough
Contrary to what you may have heard most of your life, a Will alone may not be the best plan for you and your family. And although a Will-based estate plan is well-intentioned, it often results in an unexpected and unfortunate outcome.
Losing Control with a Will-Based Estate Plan
To understand how a will-based estate plan can go wrong, consider the following scenario:
Michael and Sara had been married for 16 years and lived in Massachusetts with their 10-year old son, Ben. The couple saved and invested wisely for their retirement with assets in excess of $1 million. They also had simple “I Love You” Wills prepared, which left everything to the surviving spouse, with ultimate distribution to their son. Unfortunately, after leaving Ben with a babysitter to attend a friend’s gathering, Michael and Sara were killed in a car accident.
With basic Wills alone in place, the unexpected outcome for this family is described below:
• The night of the accident, Ben was placed into the care of the Department of Children and Families until the authorities could locate the closest family member and run the necessary background checks. Unfortunately, this was Ben’s grandmother, who was in Florida. It took nearly two days until Ben was temporarily placed with his grandmother.
• Michael and Sara’s Wills were required to go through Probate Court. The Probate process – not the family – had control over how the Wills were interpreted, how much it would cost, and how long it would take.
• The Probate process tied up their assets for nearly 18 months so Ben and his guardian did not have access to any of the funds. In addition, probate was expensive, resulting in many thousands of dollars of legal fees, court costs and other unnecessary expenses.
• As part of the Probate process, the Court set up a guardianship for Ben and appointed Michael’s sister (as she was named as legal guardian in the Wills). The Court also appointed a third-party conservator to manage Ben’s inheritance. The Court (not Ben’s guardian) controlled the inheritance until Ben reached the age of 18.
• Then when Ben turned 18, he received a lump sum payment in excess of several million dollars for all the remaining assets (as opposed to inheriting at a later age, which his parents would have preferred).
• Because the couple’s assets were in excess of $1 million, the family owed a sizeable Estate Tax to the Commonwealth of Massachusetts.
If you are surprised by some of this, you’re not alone. Most people are not aware of how little control they actually have with a Will. All of the above could have been easily avoided with more advanced, trust-based planning.
Taking Control with Trust-based Planning
(1) One of the biggest benefits of trust-based planning is that it avoids Probate Court. Your assets are distributed according to your Trust – “to whom you want, the way you want, and when you want.” You maintain control without Probate Court interference.
(2) Trust-based planning usually involves no court costs, only legal fees if an attorney is needed to assist with the administration of the Trust. In addition, the timing can be just weeks versus a lengthy Probate process of 12-18 months.
(3) A properly drafted Revocable Living Trust includes provisions to minimize or eliminate Federal and Massachusetts Estate Taxes.
(4) A Revocable Living Trust also provides Asset Protection. For example, in the case of Ben, Ben’s inheritance would have been protected from third-party creditors as well as future situations (e.g., an ex-spouse should Ben marry and divorce one day; or self-protection in the event Ben develops a gambling problem or drug addiction).
(4) One additional consideration that is not addressed in the above scenario, although very important when evaluating wills vs. trusts, is “Incapacity.” A Will provides NO protection if you become mentally or physically incapacitated. As a result, many people end up under the control of the courts before they die.
For more detail on wills vs. trusts, check out our guide “Comparison of Estate Planning Options.”
Kids Safeguard Planning
In the tragic scenario described above, a 10-year old boy who had just lost his parents was placed with the Department of Children and Families for two days until he could be reunited with a family member. During traumatic times, children are always better off with familiar friends or family members as opposed to strangers, no matter how safe and capable. If you are a parent of minor children, your advanced planning needs to include a Kids Safeguard Plan to ensure your children will always be taken care of by the people you want, in the way you want, and never put in a situation you wouldn’t like. A Will alone is simply not enough.
Thinking about the future or what will happen to your property after your passing is extremely difficult. It’s something you need to do – regardless of your age, marital status, or wealth – if you want to keep control of your assets (your estate) and of decisions about your children when something happens to you. It’s important to plan now and understand why a will-based estate plan might not be enough for you.