Estate Planning Comparison: Advantages and Disadvantages
Any estate plan is better than none, but some estate planning tools offer more advantages than others. To illustrate, consider the following scenario involving a man named Robert, his stepdaughter Emma, and his brother Samuel:
Robert married Emma’s mother when Emma was 18. Although he loved Emma, he never formally adopted her. Emma’s mother died several years ago. Robert now lives with Emma and her family, and she helps take care of him. Robert hasn’t spoken to Samuel in 10 years. Robert tells Emma that he wants her to have all his property when he dies.
Now, let’s take a look at three alternatives (no estate plan, estate planning with a Will, and estate planning with a living trust) and what will happen to Robert, Emma, and Samuel if:
- Robert becomes disabled; or
- Robert dies
Alternative 1: No Estate Plan
- Robert becomes disabled: Emma must hire a lawyer and go to court to be appointed Robert’s guardian. If Samuel also wants to be Robert’s guardian, it will be up to the judge to decide who should be appointed. Emma will have to pay court costs and her attorney’s fees. If she is appointed guardian, she will have to regularly report to the judge on her activities.
- Robert dies: Emma must hire a lawyer and go to court to begin the probate process. She can ask the judge to appoint her the personal representative of Robert’s estate, but Samuel can do the same for himself. Regardless of who the judge appoints, because Robert died without a Will, under California law all of his property will ultimately pass to Samuel, not Emma. Additionally:
- The details about what property Robert owned are now part of the public record, because probate is a public process.
- If any of Robert’s property had passed to someone under 18, the court would have had to open a guardianship to manage that property until adulthood.
Alternative 2: Estate Planning with a Will
Before becoming disabled, Robert hired a lawyer and signed a simple Will naming Emma as his personal representative and leaving all his property to her.
- Robert becomes disabled: Emma must still hire a lawyer and go to court to be appointed his guardian, because a Will doesn’t address pre-death disability. However, if, as part of his estate planning, Robert appointed Emma his agent under a Durable Power of Attorney and Advance Health Care Directive, then she can act on his behalf without first going to court.
- Robert dies: Emma must hire a lawyer and go to court to start the probate process. She will need to prove that Robert’s Will is valid. Samuel may contest the Will. If the judge agrees with Emma that the Will is valid, then he will appoint Emma the personal representative. At the end of the probate process, Emma will receive all of Robert’s property. However:
- The details of what property Robert owned are now part of the public record, because probate of a Will is a public process.
- If any of Robert’s property had passed to someone under 18, the court still would have had to open a guardianship to manage that property until adulthood.
Alternative 3: Estate Planning with a Living Trust
Before becoming disabled, Robert hired a lawyer and signed a living trust agreement. Under the terms of the trust agreement, Robert serves as trustee unless he becomes disabled, in which case Emma takes over. In either case, the agreement says that all income from the trust property must be spent on Robert’s care until his death and when he dies, all of the property goes to Emma.
- Robert becomes disabled: Emma automatically becomes trustee of Robert’s trust. She can now make financial decisions about the trust property without having to hire a lawyer or go to court. She will still have to hire a lawyer and go to court to be able to make medical decisions for Robert, unless he also appointed her his agent under an Advance Health Care Directive.
- Robert dies: The trust property immediately passes to Emma. As trustee, she terminates the trust and distributes the property to herself. If Emma has a lot of debt, Robert’s trust could also leave the property in trust for her, in which case it will be protected against her creditors. Additionally:
- The details of what property Robert owned are never made public. They remain private, because trust agreements are private arrangements.
- If any of Robert’s property had passed to someone under 18, Robert’s trust agreement could specify that the property should remain in a trust until adulthood—or even later.
- Samuel could still challenge the trust agreement, but there are steps Robert can take to make it more likely that Samuel’s challenge will fail.
Each of the above alternatives has its own advantages and disadvantages. Having no estate plan is dirt cheap upfront, but your family ends up paying for it in the long run. A simple Will is more expensive than no plan at all, but less expensive than a living trust. For some, a Will may be all they need. A living trust offers the greatest degree of control, but costs more upfront.
Which alternative is right for you depends on a number of factors. Contact us by email or telephone at (619) 696-0778 to start exploring your options.