When are will-substitutes better than a will?
Wills are the best known legal device for transferring property at death, but there are many others such as joint tenancies, tenancies by the entirety, pay-on-death bank accounts, transfer-on-death deeds, life insurance and retirement plan beneficiary designations, and revocable trusts.
While each of these will-substitutes has its own unique set of legal attributes, they all can be used to get a person’s property to one or more designated beneficiaries at the time of the person’s death and, very importantly, they do so without the property having to pass through the probate process.
Probate in Hawaii today is not nearly as slow, cumbersome and expensive as it once tended to be. But probate avoidance continues to be highly desirable in many circumstances which gives an advantage to will substitutes.
Legal fees should be less for a simple will than a funded revocable trust, but that could be misleading. The cost of a funded trust can be significantly lower than the cost of a will once the eventual cost of probating the will is also taken into account. Other will substitutes sometimes can be safely used without incurring any legal fees.
A parent of a minor child should always have a will even if just to designate the child’s legal guardian in the event of the parent’s death. That cannot be done with a will substitute.
Another possible advantage of wills is that they apply to everything that the decedent owned at death. Will substitutes are asset specific, so they apply only to property that the decedent had properly designated while alive.
A will can be an important part of a comprehensive estate plan, even for someone who establishes a revocable trust and immediately funds it by transferring all existing assets to the trust. In such cases, a will can be used to ensure that any property owned outside the trust at the person’s death will end up in the trust.
A revocable trust can be better than a will in the event of a person’s incapacity. A carefully drafted trust document can enable a designated person to take over quickly when the time comes, such as by defining incapacity to exist when a close family member says so.
Such an approach appeals to some people but others choose to make it much more difficult for the designated person to take over, such as by requiring the unanimous agreement of the attending physician and every member of the person’s immediate family. Vive la difference.
The laws dealing with wills and will substitutes are complex and nuanced, but the overarching philosophy of this column is quite simple: The perfect estate plan is whatever a fully informed person decides to do.
Next Month Question: When do I need to update my estate plan?
John Roth is the founder of Hawaii Trust &Estate Counsel, a statewide estate planning law firm with offices in Waimea, Hilo, Kona, and Honolulu. He has taught Estate Planning at the Richardson School of Law, and business law courses at the University of Hawaii—Hilo. He has resided in North Hawaii since 2008.