How many times have I heard it? A person calls me and wants to schedule an appointment. All they need is a simple will for a husband and wife. Only on rare occasions do I find that they are correct in their assessment. Since underestimating legal needs is a common problem, I thought that it was worth writing about.
First, what are the alternatives? With the last will and testament, it is either a simple will or a trust will. The "simple" approach calls for the executor of the decedent's to distribute all of the decedent's property that remains after payment of debts, taxes, and administration expenses and then close the estate. A trust will requires the executor to make a distribution of some or most of such property to a trustee, who then manages, invests and distributes the property given him or her to designated beneficiaries in accordance with instructions contained in the will.
Another alternative is a hybrid of the first two where the executor is instructed to hand over the net assets of the decedent's estate to a trustee of a trust established by the decedent while living. Such a trust is called an "inter vivos trust," which is Latin for "between the living," referring to a living person starting the trust by making a written agreement with another living person. Usually such a trust is revocable (i.e. subject to being amended or revoked by the person establishing it). The last will and testament in this situation is called a "pour-over will" because it pours over the assets from the decedent's estate to the trust, which then controls their ultimate disposition.
Combining pour-over wills with inter vivos trusts, is less popular in Georgia than in other states, such as Florida, California and New York, because the probate administration of wills is much less cumbersome and expensive in Georgia. Our probate system is user-friendly and minimizes court involvement in the administration unless there is a controversy.
So why would someone need the complexity of a trust will instead of a simple will? The most common reason is to provide for minor children in the event of the death of one or both parents. Many young parents are driven by the desire to designate a guardian to care for their children if both parents have died. They underestimate the need for someone to watch over the family's assets, including life insurance death benefits, until the children are old enough (and wise enough) to manage it for themselves. Without a trust, all of assets must be held by a conservator for each child and turned over to him or her upon reaching 18 years of age. With a trust it can be invested and managed with greater flexibility. While the child is younger the trustee can use it for his or her benefit and then distribute it outright at much later ages (e.g. one-fourth at 28 and the balance at 32).
The threat of death taxes was once a major reason for a trust will. Due to changes in the tax law in 2011 and in 2017, the Federal Estate tax is threatening fewer estates. For 2020 the tax kicks in for estates that are over $11.5 million. However, a married couple with the proper documents can protect a total of over $20 million. That "exempt amount" is scheduled to change in 2026 to about $6 million person.
A trust is used to minimize exposure to the death tax because it can hold assets at the "first death" so that some portion of the family wealth bypasses the estate of the surviving spouse estate. After the death of the surviving spouse, the trusts from each estate hold all of the family wealth for distribution to the children at designated ages. Historically the tax rate has been as high as 55%. So when the death tax hits it can take quite a bite out of the family wealth.
The last reason the "I just need a simple will" approach can be questionable is that a will only deals with death. A disabling illness or injury creates plenty of legal issues that a will cannot resolve. I find that over 90% of the people I see for wills have not prepared and signed powers of attorney. These documents enable a spouse, or any other trusted person, to stand in for a totally disabled person and make necessary health and financial decisions. So even if a trust will is not needed, powers of attorney should be a part of every estate plan.
Making a will is better than doing nothing. But it is not wise to go into the effort with preconceptions of how much needs to be done.