Many of my estate planning meetings begin with my clients proclaiming that they need trust agreements (usually because they attended a seminar where “living trusts” were the selling point). Trusts are not a panacea; they are simply tools that are used to satisfy stated goals, such as estate tax planning, probate avoidance, protecting young/vulnerable children, providing for charitable giving, etc. But trusts are complex, and relatively expensive, and therefore should only be used where the client has weighed that cost and complexity against the stated goal. Many times, on balance, a trust is contraindicated.
What about a last will and testament (a Will)? Surely, if a trust isn’t going to be used as part of the estate plan, the clients at least need a Will. The answer is: usually. Like a trust, a Will is a tool that should be used to accomplish stated goals, such as naming a guardian for minor children, designating an executor, and dividing/distributing the clients’ property after death. But, unlike a trust, Vermont law provides a set of rules that apply in the absence of a Will. The question is whether a Will is needed to meet the clients’ objectives.
So far, in 2019, I have had three sets of married clients who walked into my office thinking they needed trusts and walked out convinced that they did not need a trust or a Will. How so? A real life example will illustrate:
Bob and Anne Smith are both 68 years old and in good health. They have two sons, both of whom are married with stable careers and finances. The Smith’s estate is valued at $6 million, including retirement plans, real estate and other investments. Except for their retirement plans, all assets are jointly owned. They have named each other as the primary beneficiary of their retirement plans and their sons as equal secondary beneficiaries.
Bob plans to establish residency and domicile in Florida in the next several months; Anne is reluctant to relinquish her status as a Vermonter, but will probably do so in the next few years.
Bob and Anne want to leave all of their assets to each other and, after their deaths, in equal shares to their children. They understand that if Bob dies first and then Anne dies (while still a Vermonter) their estate will be subject to Vermont estate tax on the order of $500,000+. But they also understand that this scenario is pretty unlikely given their short-term plans and therefore they do not want to engage in any sophisticated estate tax planning. They also understand that regardless of where they are living, their sons will need to probate the estate of the last spouse to die. Given the cost and hassle of creating an estate plan to avoid probate, they are okay with letting their sons handle the final probate administration.
Without Wills, all property owned by the first spouse to die will pass to the survivor – either by joint ownership, beneficiary designation or laws of intestacy (intestacy = dying without a Will). Just as Bob and Anne desire. Without Wills, all property owned by the second spouse to die will pass to their sons in equal shares – either by beneficiary designation or laws of intestacy. Again, just as Bob and Anne desire. Although Bob and Anne understand they cannot designate theirs sons as executors without Wills, they also understand that their sons would, in all likelihood, be appointed in that capacity by a court (just as they desire).
Bottom line: all of the Smiths’ stated goals are achieved without Wills. The risks taken by foregoing Wills were explained to, and accepted by, them. The plan works without incurring the cost and trouble of creating Wills. Without taking any further action, their assets pass to each other and then to their sons equally, just as they desire.
Moral to the story? Trusts and Wills are tools. First define your goals and then decide which of these tools, if any, fits the job. Sometimes the answer is “neither.”