Living Trusts versus Wills
Wills and trusts are the two legal documents that are used in estate plans to distribute possessions. Today’s tip will summarize the differences between the two.
Before we get into specifics, however, if you need some fun motivation about why having a will and/or living trust is important, check out this blog post from Andy and Danielle Mayoras, attorneys and the authors of Trial & Heirs: Famous Fortune Fights! The blog shares the impacts of the wills and trusts of celebrities who have passed away.
Now, on to the real riveting material for this week…
Will
A will generally contains four functions:
How to distribute any assets that are only in the name of the deceased
Recommend guardians for any surviving underage children
Outline the deceased’s wishes for funeral, burial/cremation, memorial service, etc.
Name the executor who will carry out the instructions of the will
Living Trust
A living trust is a legal arrangement in which the creator, the “grantor”, transfers ownership of property to the trust. A “trustee” (who can also be the grantor) is named to manage the assets of the trust as a benefit to specific beneficiaries. The trustee follows the directions of the trust until they die or become incapacitated. At that time, a backup trustee takes over the administration and carries out the wishes of the grantor as outlined in the trust.
Similarities
The similarity or overlap between a will and trust lies in that each disperses assets, albeit in different ways.
Differences
Following are the main differences:
Effective Date –
A will only becomes effective when the owner dies.
A living trust goes into effect as soon as it is legally created and the trustee is authorized to distribute the assets as per the rules and directions of the trust.
Probate –
In most cases, a will is subject to probate, the process by which a court of law determines that the will is authentic, sees that creditors are properly paid, and oversees the execution of the will.
Alternatively, a properly established living trust is not subject to probate because the assets are not owned by the deceased. They’re owned by the trust.
Privacy –
Once a will is presented for probate, the information contained in the will becomes available to the public.
The details of a living trust remain private and confidential.
Costs –
Generally speaking, the legal costs to create a will are less than what it takes to create a trust. Lawyer fees are relatively low due to a will’s simpler nature and many templates are available on the internet that allow an individual to create a will without even talking to an attorney.
Trusts tend to be more involved and complicated, thus making it harder for the do-it-yourselfer and more expensive to hire an attorney.
On the flip side, however, executing the two documents has the opposite effect.
Probate tends to be a long process that can be drawn out over the course of several months and requires multiple interactions between the courts and attorneys, which drives up the legal fees. There may be other indirect costs incurred by the surviving family members who desperately need the inheritance to cover living expenses but must wait for probate to run its course.
A properly written living trust can be executed quickly and efficiently.
If you have questions about whether you should distribute your assets through a will or a living trust, we encourage you to seek counsel from a licensed attorney who specializes in estate planning. They will be able to ask the appropriate questions regarding your situation and guide you to the option that best suits your needs.
For guidance, contact us at peaceofmind@affairsinorder.com
ACTION ITEMS:
If you have a will or living trust, take time to review the documents and consider whether any revisions should be made.
If you don’t have either document, do an inventory of your assets that you’d like to have a say in what happens to them after you die. Then consult an estate planner to discuss options that fit your circumstances.
