Living Trust vs. Will

An important part of estate planning is having a legal document that details how you want your property and assets to be distributed upon your death.  You have choices, two of which are a living trust and a will. However, how does a living trust compare with a will to perform this task? Several factors will decide whether a living trust or a will is right for you.

Factors include: the state in which you live (each state enforces its own laws about probate and estate taxes), the value of your estate, your beneficiaries and their needs, the complexity of your estate (and whether you think someone may contest it), and your ability to remain diligent when it comes to funding a trust.

Both a living trust and a will are designed essentially to reach the same goal: to designate the distribution of your estate upon your death.  However, when you compare a living trust to a will, you will understand that each works in very different ways to accomplish the end goal. Following are both the pros and cons of living trusts and wills:

The Pros and Cons of a Living Trust

A trust is a legal document that allows you to list all your assets and property and to determine the distribution of these assets upon your death. A living trust includes a Declaration of Trust, a document that lists the names of beneficiaries, the property and assets in the trust, and the terms associated with the transfer of these assets and property.

A living trust is managed by you, and the property in the trust is owned by you. You manage your trust during your lifetime. It is important to understand, however, that a living trust doesn’t always replace a will. A will can serve to distribute any assets that are not included in the trust. Here is what you need to know about trusts:

  • A living trust is often used in conjunction with a will and a power of attorney.
     
  • A living trust goes into effect the day you sign documents and fund the trust. Conversely, a will goes into effect upon your death.
     
  • Living trusts are helpful while you are still living, helping you manage your estate if you become incapacitated.
     
  • Living trusts are usually kept as and considered private documents, unlike wills, which become public during the probate process.
     
  • Living trusts, which are private documents, don’t have to undergo the probate process, saving beneficiaries a notable amount of time and money.
     
  • Living trusts may be more useful and provide more protection in cases where someone contests an estate.
     
  • Living trusts may lessen estate taxes, which can be extremely useful if the estate is large.

The Pros and Cons of a Will

A will is a legal document that allows you to allocate assets and property. Upon your death, your will goes through the probate process, which allows for its verification. When drafting a will, you must appoint an executor whose job is to manage your estate and distribute all property and assets upon your death.

  • A will usually costs very little money to draft, unlike a living trust, which may cost a few thousand dollars to set up.
     
  • A will allows you to designate a legal guardian for your minor children; a trust cannot do this. Many people use wills for this particular reason and use trusts to designate the allocation of their assets and property upon their death.
     
  • A will usually always goes through a probate process that can be time-consuming and expensive. If you own property in more than one state, the probate process can become more complicated and more expensive.
     
  • If you draft a will properly, the probate process can be quick and effortless. Many people assume that probate is long and drawn out every single time. But many times, the truth is the probate process can be completed in short time.
     
  • Once a will enters probate, it becomes public record. A living trust, on the other hand, usually stays private. Many people choose living trusts over wills based solely on privacy issues.
     
  • Since wills are strictly regulated, you have little to do outside of listing all your assets, property and beneficiaries. Living trusts, however, require you to fund and maintain the trust. Many people are able to draft a simple will in the comfort of their own home using an easy, at-home will kit. They then only need to have it verified according to their state’s laws.
     
  • Wills are generally ideal for small or uncomplicated estates. If the distribution of your assets and property is fairly straightforward, the process of drafting a will to reflect your wishes is also straightforward and relatively easy to do.

There are many differences between a living trust and a will, and each has its own set of benefits and disadvantages.  Some people find that living trusts and wills complement each other nicely, while people with larger estates often opt for the protection and tax benefits of having a living trust only.

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