Estate planning is a crucial aspect of life that ensures your assets are distributed as you intend it. In estate planning, there are two primary tools: living trusts and wills.
“While both living trusts and wills serve the fundamental purpose of guiding asset distribution, they have different features, advantages, and limitations.” says estate planning attorney Tyson Cross of Cross Law Group. “Their differences apply in their functionality, legal process, and benefits attached.” In this essay, you will get to understand certain important aspects of a living trust and a will and how they differ. This will guide you in understanding which is the right choice for you.
How a Living Trust Differs from a Will
Just as living trusts and wills are similar in their function, legal process, and merits, they also differ in certain aspects. The following outlines the differences between living trusts and wills.
Probate
A will requires a probable process to become valid. A probate is a court-supervised procedure that validates a will, settles debts and distributes assets according to the instructions indicated in the will. This procedure can be costly and time-consuming.
A living trust, on the other hand, does not require a probate process. You do not need the involvement of a court to transfer assets placed in a trust. This process makes living trusts less expensive, less time-consuming, and a private affair.
Timeliness
A will only becomes effective after your death. A living trust, on the other hand, is effective the moment you create and fund it. You can also include provisions in your living trust to manage your assets in the event of incapacitation. If you become incapacitated, a successor trustee will be appointed to administer the trust.
Private vs. Public Affairs
Since a probate process is mandatory for validating a will, it means there will be a public record of it. Thus, any member of the public can read the details of your will. A living trust, on the other hand, does not require a probate process; therefore, it does not have to be entered into public records.
Cost-Effectiveness
The process of creating a will is simpler and less expensive than that of establishing a trust. That is because the process of funding a living trust requires you to transfer ownership of your asset into the trust.
Asset Coverage
A will covers all the assets in your name before death. A living trust only covers assets you transfer into the trust.
That means you may have assets in your name that you do not transfer into the trust. In such a case, the asset may need to undergo probate.
Factors to Consider When Making a Choice between a Living Trust and a Will
The Size of Your Assets
It is advisable to create a living trust if your estate includes multiple properties. Multiple properties may include primary residences, vacation residences, and rental properties. A living trust will ensure the effective management of these properties without the need for probate.
Similarly, consider a living trust if your business operates in multiple states or countries. It is also applicable to individuals with valuable art or antique collections.
However, if your assets consist of a single bank account, a car, and a house, then a will is sufficient. That is because the probate process for smaller assets is relatively inexpensive and not time-consuming.
You should also consider creating a will if you have minor children and need to name a legal guardian. What makes it even better is that you can complement this with having a living trust to manage the finances of your estate till the children reach adulthood.
Your Desire for Privacy
Your desire for privacy may also influence your choice. A living trust provides a significant advantage when it comes to privacy. This is because it avoids a public probate process.
On the other hand, the moment a will enters the probate process, it becomes a public record. It means that any member of the public can access the details of your will. They can also know the beneficiaries of your will and the valuation of your assets.
Most of the time, people want to keep details of their finances private. They also want to protect their family from the public eye. That is why privacy becomes vital for them.
Planning in Case of Incapacitation
This is one of the most important factors to consider when deciding between creating a will or a living trust. Incapacity planning ensures that your assets are managed according to your wishes in the event of incapacity.
A living trust offers a considerable advantage in this aspect. In a living trust, there is a provision for the appointment of a successor trustee to manage the assets according to your wishes in case you become incapacitated.
For instance, in a situation where you suffer a life-threatening illness, the successor trustee can step in and manage all the investments in the trust, pay bills, and maintain your properties without the need for a court intervention.
On the other hand, a will does not have such a provision. This is because it only takes effect after your passing. Thus, in the event of incapacitation, managing your estate may require lengthy and expensive court intervention to designate a trustee.
Cost
It is also crucial to consider the cost of your choice. Creating a living trust is typically more expensive than creating a will. Also, the process of creating a living trust is time-consuming and cumbersome.
Maintaining a trust also requires ongoing effort. That is, you need to update the trust when you acquire new assets.
Meanwhile, wills are more straightforward and cost-friendly. They are also best for people with a smaller estate.
Jurisdictional Regulations
The laws of your state play a significant role in the extent to which living trusts and wills are practicable. The cost, complexity, and length of a probate process vary by state.
For instance, in California, the probate process is lengthy, cumbersome, complex, and expensive. This makes it the wiser choice to opt for a living trust. Conversely, the process is less costly and more straightforward in Texas. Hence, you may consider having a will over a trust in this jurisdiction.
Minors
Wills are a better option if you have minor children. You can designate a guardian for your children in your will. Thus, your children will be cared for by someone you trust.
Additionally, a will enables you to express your wishes regarding your children’s education, healthcare, and overall well-being. A living trust, on the other hand, cannot provide a guardian for your minor children. It only takes care of managing the estate’s finances and ensuring your children’s needs are met.
Concluding Remarks
Living trusts and wills are both legal tools you can use to design how you want your wealth distributed after your passing. Thus, both tools include functions such as asset distribution and beneficiary designation.
With a living trust and will, you can specify how you want your assets distributed, the beneficiary may include your family, friends, or charitable organizations.
Another significant advantage of both tools is that you can review and revoke any provisions you formerly made at any time.
That way, you can achieve your estate planning goals. Typically, many people’s goals include mitigating family disputes after their death, ensuring their loved ones get provided for, and that their wishes are carried out to the letter after their death.