This article explores essential estate-planning documents, including the key differences and similarities between a Last Will and Testament and a Revocable Living Trust, along with other crucial documents that build a complete estate plan.
Last Will and Testament
A Last Will and Testament (a “Will”) is a document that specifies how assets will be distributed following the death of the Will-maker (the “testator”). A Will can be changed at any time while the testator is living and legally competent.
Under Iowa law, a Will does not take legal effect until after the testator dies and the Will is admitted to probate. During probate, the Will and other legal documents are filed with the court, and the estate is administered under court supervision. This process typically takes a year or more to complete, and all filed documents, including an inventory of the testator’s assets, become public record.
Probate can be expensive. In Iowa, attorney fees are generally limited to 2% of the value of all assets owned by the testator at the time of death (other than life insurance payable to a named beneficiary). For example, if a testator owned $2 million in real estate, bank accounts, annuities, investments, and retirement accounts, the statutory attorney fee for probate would be $40,000. Court costs add an additional 0.2% of the value of some of the testator’s assets.
Because of the cost, delay, and public nature of probate, many people choose to avoid probate by creating a revocable living trust.
Revocable Living Trust
Much like a Will, a revocable living trust (a “Revocable Trust”) is a document that specifies how assets are to be distributed upon the death of the trust-maker (the “settlor”). A Revocable Trust can be changed at any time while the settlor is living and legally competent.
Unlike a Will, a Revocable Trust can avoid probate for assets owned by, or payable to, the Trust at the time of the settlor’s death. This often results in substantial cost savings for the settlor’s beneficiaries and generally keeps the estate administration private, as it is not typically open to public record. Furthermore, a Revocable Trust is usually faster to administer than a Will.
The provisions of a Revocable Trust agreement apply only to those assets that are titled in the Revocable Trust’s name or made payable to the Revocable Trust by beneficiary designation. Beyond drafting the Trust agreement itself, attorneys typically prepare the necessary documents to complete asset ownership or beneficiary changes.
Some examples of these trust-funding documents include:
- Real estate title work transferring the settlor’s real estate into the Revocable Trust;
- A bill of sale transferring ownership of the settlor’s personal effects and other tangible personal property to the Revocable Trust; and
- A letter to banks and credit unions requesting that the Revocable Trust be designated as pay-on-death beneficiary of the settlor’s checking and savings accounts and certificates of deposit.
The creation of the real estate title work and other trust-funding documents generally means there are more attorney hours needed to create a Revocable Trust as compared to a Will, so the cost to create a Revocable Trust may be higher than that of a simple Will. For many clients, the additional up-front cost is more than offset by the savings of avoiding probate. The simplicity and privacy that a Revocable Trust affords can be important factors, as well.
Other Documents
In addition to the above documents, an estate plan may include the following:
- General Power of Attorney, in which the signer (the “principal”) names an agent who can manage the principal’s income, property, and financial affairs during the principal’s lifetime, including if the principal becomes unable to do so due to disability or illness;
- Durable Power of Attorney for Health Care, in which the principal names an agent who can make healthcare decisions for the principal if the principal becomes unable to do so due to disability or illness; and
- Living Will (Advance Directive), in which the signer (the “declarant”) can direct medical professionals not to use life-sustaining procedures, such as ventilators or feeding tubes, if the declarant has an incurable or irreversible condition with no reasonable expectation of recovery, and the procedures would only prolong the dying process.
A well-structured estate plan provides peace of mind, ensuring your wishes are honored and your loved ones are protected. Consulting with an Iowa attorney specializing in estate planning can help ensure your plan is tailored to your unique needs and objectives.
