Do I Need A Will Or Living Trust? Let’s Talk About Each
We Break down both wills and living trusts in this post to help you better understand each and set your loved ones up for success
When it comes to estate planning, two common legal instruments come into play: wills and living trusts.
Both serve the purpose of distributing your assets after your death, but they have distinct characteristics and offer different benefits. Understanding the differences between wills and living trusts is crucial for making an informed decision about which option suits your needs best.
In this post, we'll delve into the high level features, setup process, costs, and various factors to consider when choosing between the two.
Let’s get started!
Key Definitions And The Set Up Process
A will is a legal document that outlines your wishes regarding the distribution of your assets upon your death. It also allows you to name a guardian for your minor children and an executor to carry out your wishes.
Wills are typically less expensive to set up and they can be drafted with the assistance of an attorney or even through online templates.
On the other hand, a living trust, also known as a revocable trust, is a legal entity that holds your assets during your lifetime and enables the seamless transfer of these assets to your beneficiaries after your death.
Setting up a living trust involves drafting a trust agreement and transferring your assets into the trust. This process generally requires the guidance of an attorney, as it can be more complex than creating a will.
The costs associated with wills and living trusts can vary. Wills are usually less expensive to create, with attorney fees typically ranging from a few hundred to a few thousand dollars, depending on the complexity of your estate and the expertise of the attorney.
Online will templates are available at a lower cost, but caution should be exercised to ensure their legality and validity.
Living trusts are generally more expensive to establish due to the additional legal work involved. The cost range for setting up a living trust can vary significantly, ranging from a few thousand to several thousand dollars.
It's important to consult with an experienced estate planning attorney to ensure that your living trust is properly drafted and executed.
Main Differences and Comparison of key factors
Both wills and living trusts serve the purpose of distributing your assets, and so both can govern assets owned by you at the time of your death.
With that all said, there are three main differences that set them apart:
Probate avoidance: Wills typically go through probate court, which is a legal process that validates the will and oversees the distribution of assets. Probate can be time-consuming, costly, and subject to public scrutiny. In contrast, living trusts can help bypass probate for assets held within the trust, saving time and expense for your loved ones.
Privacy: Wills are public documents, which means that their contents become part of the public record during probate. This lack of privacy may expose your beneficiaries to unwanted attention. Conversely, living trusts are private documents, allowing your estate plans to remain confidential.
Asset management during incapacity: Unlike wills, living trusts provide provisions for managing your assets in the event of your incapacity. If you become unable to manage your affairs, your designated successor trustee can step in and manage the trust assets on your behalf. This feature can be particularly valuable for individuals concerned about potential future incapacity.
Does that mean I just need one or the other?
While you certainly can choose just one over the other based on some of the factors above, having both a will and a living trust can be a prudent estate planning strategy for many individuals.
Here are some reasons why you might want both a will and a living trust:
Flexibility and control: A will allows you to outline your wishes regarding the distribution of your assets upon your death. It provides you with the flexibility to name beneficiaries, specify the distribution of specific items, and appoint an executor to administer your estate. You can easily update your will as your circumstances change.
Avoiding probate: As we noted above, probate is the legal process through which a court validates a will and oversees the distribution of assets.
It can be time-consuming, expensive, and subject to public record. By contrast, a living trust allows you to transfer ownership of your assets to the trust during your lifetime. Upon your death, the assets held in the trust can be distributed to your beneficiaries without going through probate, saving time and costs.
Privacy: Wills become part of the public record when they go through probate, meaning that anyone can access the details of your estate.
A living trust, on the other hand, is a private document. It allows for the confidential distribution of your assets, providing increased privacy for you and your beneficiaries.
Planning for incapacity: A living trust can be beneficial during your lifetime as it allows for the management of your assets in the event of your incapacity or disability.
You can designate a successor trustee who can step in and manage the trust assets on your behalf without the need for court intervention. This can ensure the smooth management of your affairs and financial matters.
Complex or out-of-state assets: If you own property in multiple states or have complex assets, such as business interests or valuable investments, a living trust can be a useful tool.
It can help streamline the transfer of these assets to your beneficiaries by avoiding the need for multiple probate proceedings in different jurisdictions.
Planning for blended families or special needs beneficiaries: If you have a blended family or wish to provide for a loved one with special needs, a living trust can offer more control and flexibility.
You can create provisions within the trust that protect the interests of different beneficiaries, ensuring your wishes are followed even in complex family situations.
In addition, it's important to note that while a living trust can help you avoid probate for assets held within the trust, you still need a will to cover any assets that are not included in the trust at the time of your death. That is one of the reasons many people choose to have both.
Lastly, both wills and living trusts do not offer significant protection from creditors, although certain types of trusts can provide varying degrees of asset protection.
Final Thoughts…
Given the legal complexities involved in estate planning, it is advisable to consult an experienced estate planning attorney to set up both wills and living trusts.
An attorney with expertise in this field will guide you through the process, ensure your documents are legally sound, and address any specific concerns or goals you may have regarding your estate plan.
Deciding between a will and a living trust requires careful consideration of your individual circumstances, preferences, and estate planning goals.
While wills are more cost-effective and simpler to set up, living trusts offer additional benefits such as probate avoidance, document privacy, and asset management during incapacity. Sometimes the answer for a family is to set up both.
Lastly, as noted it is essential to consult an estate planning attorney to help you make an informed decision and create a comprehensive estate plan tailored to your needs.
Remember, proper estate planning can bring peace of mind and ensure the seamless transfer of your assets to your loved ones when the time comes.
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