Even if you’re a person of modest means, you have an estate. Naturally, you want control over the allocation of your assets after you die and want to be sure that your family is cared for properly, which is where an estate plan comes into play.
There are two strategies for allocating your assets after death: a will and a living trust. Both a will and a living trust allow you to designate beneficiaries for your property, but they’re used for different purposes. Deciding which is right for you depends on what you’re looking to accomplish and your survivors.
Learn more about making a will or trust and find out which is more appropriate for your estate planning process.
What is a Will and a Living Trust?
A will is a document that’s been signed and witnessed and dictates how your assets will be allocated after death. It can be revoked and is subject to amendment at any time, and it can also include an appointed guardian for minor children.
A living trust, on the other hand, provides lifetime and posthumous asset management. You can serve as your own trustee with a successor appointed upon death or incapacity without the need for court intervention. This helps to avoid the publicity, expense and inconvenience of court-supervised distribution of assets.
What is the Purpose of a Will or Living Trust?
The main purpose of a will and a trust is to designate beneficiaries for your assets, though there are some differences between the way this is handled. With a will, you simply describe the assets and designate the beneficiaries. With a trust, you need to designate beneficiaries and transfer the property into the trust.
Beyond that, there are some situations in which a will or a trust could be the better choice.
Leaving Property to Minors
Minor children can’t own any assets of significant value, so if you leave assets to them, it must be managed by an adult until they reach 18.
If you leave assets to a minor with a will, an adult needs to be named to manage it. You can also set up a testamentary trust or name a custodian under the Uniform Transfer to Minors Act. If you neglect to name an adult for this responsibility, the court will appoint one.
With a living trust, the appointed trustee manages the assets until the child reaches an age determined by you. There’s no need for the additional paperwork or planning involved.
Revising Your Document
Both wills and living trusts allow you to revise your document if your wishes or circumstances change. This is only true of revocable living trusts, however. Irrevocable trusts are finalized and not subject to revision, which is typically more involved than making a revocable living trust.
Probate is a judicial process in which a will is proven by the court and acknowledged as a valid public document that is the decedent’s last wishes. Probate can be a long and involved process, not to mention expensive, and it’s not always necessary. Because of this, many people choose to avoid probate in planning their estate.
Assets left in a will go through probate, but assets left in a living trust don’t. With a living trust, all assets can be distributed to beneficiaries right after death, without any additional fees or interference from the court.
That said, avoiding probate isn’t always a priority. Individuals with few assets or with a lot of debts may not benefit from a living trust.
Living trusts must be signed and stamped by a notary public, whereas a will does not. Wills do require witnesses, however, which includes two people who aren’t included in the will’s beneficiaries. If getting through probate is a concern, a self-proving affidavit that’s notarized is helpful.
After death, a will becomes a public document, but a living trust doesn’t. For this reason, people who value their privacy tend to prefer the discretion of a living trust.
Protection from Contest
A contest to a will or living trust is rare, but it can occur. This happens if the will doesn’t fulfill legal requirements or the maker of the will wasn’t of sound mind. Generally, a living trust is harder to contest and win than a will.
If you become incapacitated or otherwise unable to manage your affairs, a living trust can appoint a spouse, child or other individual the authority to manage the assets. A will doesn’t offer this option, but a power of attorney does leave the option to appoint someone to manage finances.
Children’s Guardianship and Assets
If you have surviving minor children, a will allows you to name guardians. You can also appoint people to manage the assets left to your minor children. Neither of these two options exist for a living trust.
Naming an Executor
An executor is a person who is tasked with carrying out your last wishes and distribution of assets after your death. They must communicate with court, resolve debts and distribute any assets in probate.
A will uses an executor, but a living trust does not. A living trust has a successor trustee who manages the assets in the trust. Most estates require an executor to keep the process streamlined, so it’s practical to create a will and name an executor, regardless of how much property is left in the trust.
Taxes and Debts
Before any assets can transfer over to beneficiaries, all debts and taxes must be paid. With a will, you leave instructions for how you want these debts handled, especially if you’re using your will to forgive debts owed to you.
This isn’t a good idea with a living trust, since a creditor could go after the trust, seek its termination and gain access to the assets within it. This is because of the very terms of the trust, which allow it to be changed or terminated at any time.
When it comes to the estate planning process, wills are much simpler. A will is just a document devoid of difficult language, which must be witnessed by two impartial people and signed by the will maker.
A living trust isn’t complicated either, but it’s not quite as simple as a will. Living trusts cover all the trustee’s responsibilities, so they’re longer and more complex overall. Living trusts also require a notary public signature and a transfer of assets into the trust, which adds some steps to the whole process.
What Do Wills and Living Trusts Not Cover?
No matter their differences, there are a few things that neither a will nor a living trust can be used for, including:
Reducing estate taxes: Neither document can reduce estate tax, but not all estates owe taxes.
Distributing money to pets: Pets are legal property themselves, so they can’t own property. Still, pets are important for some people, so a will can include provisions for a pet caretaker and a pet trust can be made.
Leaving final wishes: Final wishes, such as viewing or funeral instructions, can be left in a will, but not in a living trust. They should also be put in a separate document altogether.
Leaving passwords for accounts: The executor of your will may need to access your online accounts or devices after your death, so it’s important that they have login information. This information shouldn’t be in a will or a living trust, however. Like the final wishes, sensitive login information should be left in a separate document that’s stored in a secure location with other estate documentation.
Learn More at Tanko Law
A will is a smart choice for nearly everyone, but a living trust is only necessary in certain situations. Factors like age, wealth and marital status all determine the need for a living will, so it’s best to speak with an estate planning attorney to decide if it’s the right choice for you.
If you’re ready to get started with your estate planning, Tanko Law can help. Our estate planning attorneys are here to offer advice and guidance in deciding between a will or trust, so contact us today to see what we can do for you!