If you’ve begun to consider estate planning, you’ve undoubtedly come across two typical means of distributing your assets, money, or wealth to your loved ones – trusts and wills. There are, however, significant distinctions between these two essential documents, particularly when it comes to when and how your assets are distributed.
It’s important to note that trust and will rules differ by state, so you should contact an estate planning attorney or expert in your area for details. However, certain characteristics of trusts and wills are universal regardless of where you reside. This article explains living trust vs. will, including the pros and cons of each and how to integrate them.
What is a living trust?
Trusts are legal structures that allow your assets to be transferred from you, the grantor or trustor, to a trustee. They provide the parameters for the trustee’s asset management, disbursements to one or more chosen beneficiaries, and eventual disposal of the assets. The trustee is a fiduciary who must act in the best interests of the beneficiaries at all times while handling the trust’s assets.
Unlike wills, which take effect upon death, trusts take effect when assets are transferred to them. A “living trust” may be established when the grantor is still alive. Alternatively, a trust may be a “testamentary trust” established after death in line with the decedent-grantor’s will provisions. Trusts are widely used in estate planning to benefit the grantor’s heirs and arrange for asset transfer to them.
Living trusts are classified into two types: revocable trusts, which may be amended throughout a person’s lifetime, and irrevocable trusts, which are frequently permanent but might provide tax benefits.
In many circumstances, the same assets will be included in a trust as in a will. Any asset that can pass under a will can also pass through a trust. Trusts are often funded through real estate, non-retirement brokerage accounts, and life insurance.
Unlike wills, living trusts do not go through probate, which some people like. Probate is not always as straightforward in certain states as in others. “For example, California has a stressful and expensive probate process. As a result, most Californians with an estate plan have a trust.
In more intricate estate scenarios, a living trust might also be beneficial if a Florida resident owns property in Pennsylvania, for example, that presents a different problem. Not only would there be a probate in Florida, but also in the state of Pennsylvania. In two states, a living trust may prevent the requirement for probate.
Advantages of a Living Trust
- Living trusts take effect when assets are retitled in the trust’s name. Wills are only effective after your death.
- Unlike a will, a living trust takes effect when the owner becomes unable to manage their affairs due to sickness or injury.
- Increased privacy. Because the estate is never probated, only those named in the trust as grantors, trustees, and beneficiaries can access the record.
- Because trusts may avoid probate, they do not become public records and can save time and money.
The disadvantages of a Living Trust
- Affordability. A trust may be more expensive to establish than a will. If you go the usual route of using an estate attorney to draft your plans, they’re always going to charge more for a typical revocable living trust plan because it’s a bigger document with more words and more complexity. It can also take more of their time to set up. It costs them more to assist or guide you in transferring assets.
- More complicated. While wills are very simple to create, trusts may be more difficult.
What is a will
A will is a legal document that governs the transfer of your assets to your specified heirs and beneficiaries after your death. It may also contain your instructions for choices that must be carried out after your death, such as naming the executor of your will and guardians for your young children or instructions for your funeral and burial.
A will may order the executor to establish a living trust and appoint a trustee to keep assets for the benefit of certain people, such as any minor children, until they reach a defined age or the age of majority.
A will must be signed and attested under state law. A legal process is needed for its implementation. It has to be submitted to the probate court in your jurisdiction and carried out by your chosen executor. However, The document is publicly accessible in the probate court’s records, which monitors its implementation and has authority over any objections.
Advantages of a will
- Wills are often simpler documents and, as a result, may be less expensive to write.
- There is no need to transfer assets while you are still living. Possessions in a will are transferred via the probate procedure after your death.
The disadvantages of a will
- Probate must be used. Not everyone wants their possessions to be probated.
- It will be added to the public record. Your will becomes part of the public record as part of the probate procedure and may be seen by anybody who requests it.
How do you combine a living trust with a will?
Trusts may be an excellent financial estate planning tool, but they only deal with certain assets, not your whole estate. Even if you set up a trust, you’ll almost certainly need a will, particularly if you have little children.
In most circumstances, a pour-over will is the ideal approach to include both a living trust and a will in your estate plan. A pour-over will consist of a provision to “pour” any remaining or unallocated assets in a person’s estate into a living trust after the person dies. When you construct a living trust using online software or with the assistance of an estate planning attorney, you will almost certainly be given a pour-over will as an addition.