Though it’s nobody’s favorite subject, estate planning is truly the gift that keeps on giving. Having your affairs in order reduces the stress of an already stressful situation and saves your loved one's time, money and aggravation. A few key questions about wills and living trusts can help you prepare for the process of organizing your assets.
What is a Will?
A will is a written legal document—signed and witnessed—that indicates how your property will be distributed after your death. It is reassuring to note, a will is revocable and can be amended at any time during your lifetime.
What is a Living Trust?
A living trust is a document that provides both lifetime and after-death property management. You, as the grantor and trustee, manage your assets while you are alive. An appointed successor will become the trustee upon your incapacitation or death without the expense and inconvenience of any court-supervised distribution.
What are the Differences Between a Will and Living Trust?
The main difference between a will and a living trust is that a living trust becomes valid as soon as it is executed during your lifetime. A will takes effect only after your death. Another significant difference is, in the event you become unable to handle your own affairs, a living trust will transition your estate to your named successor. If you have a will instead of a living trust, you will need a separate power of attorney to facilitate that transfer.
What are the Advantages of a Living Trust?
A properly executed living trust allows you to plan for the possibility of your own disability or incapacity. It can be used for any size estate and avoids the probate of your assets. It can also prevent your financial affairs from becoming a matter of public record, depending on your state of residence.
What are the Disadvantages of a Living Trust?
A living trust is more expensive to set up than a typical will and it is useless unless it is funded. The trust can only control those assets that have been placed into it. If your assets have not been transferred, or if your death occurs before the trust is funded, the trust will be of no benefit. Your estate will be subject to probate and there may be significant estate taxes. You must also continually update your assets as you accumulate them. Any unincluded assets will wind up in probate.
What to Consider When Choosing Between a Will and Living Trust?
Here are a few critical factors to consider when deciding between a will and a living trust:
- Location: Check your state laws. Estate tax and probate laws vary greatly from state to state.
- Assets: Based on state laws, the value and type of assets in your estate can impact your choice.
- Taxes: Check the tax laws in your state to see if a living trust will have any tax advantages.
- Beneficiaries: A living trust will facilitate delay of asset distribution in the event you are providing for young, special needs or other special beneficiaries.
- Contested Estate: If you think there is a chance your estate will be contested, a living will is better suited to withstand the challenge.
- Your Trustee: Your living will trustee is a critical choice as he or she must be relied upon to act according to your wishes without court intervention or monitoring.
- Your Finances: Setting up a living trust may be more expensive upfront.
Please note. This blog is not an endorsement of a will or living trust option. Be sure to consult an expert and ask plenty of questions until you are satisfied you’ve made the choice that works best for you and your estate.