Deciding Between A Will And A Living Trust

Wills and Living Trusts are both common and very effective estate planning instruments used in directing the transfer of your property and assets upon your death. This article will help provide a general overview of each document.

What is a Will?

A Will (also known as a Last Will and Testament) is a legal instrument that directs the transfer of your property and assets upon your death according to you wishes. A Will is important to have as it allows you to communicate and express your exact wishes.

The executor is the individual that you name in your Will to carry out your wishes and handle all matters related to the management and administration of your estate. To have your executor legally qualified and appointed to serve, your Will must be probated with the court systems upon your death. Your Will (even though you created it during while you are living) is only effective upon your death.

What is Probate?

Probate is the court supervised process that involves filing your Will with the court and appointing the executor named in your Will to handle all matters related to the management and administration of your estate. Each state’s laws related to the probate process varies. There are legal fees and costs associated with any given estate administration.

What is a Living Trust?

A Living Trust (also known as a Revocable Trust) is a legal instrument designed to manage your property and assets for your benefit while you are living according to the terms of the Trust Agreement. Like a Will, the Living Trust also directs the transfer of your property upon your death according to you wishes. A Living Trust is created and effective during your lifetime. Generally, a fully funded Trust (that is, all your assets have been transferred to the Trust) would not involve the probate court systems, and upon your death, your property is distributed by the trustee according to the Trust Agreement. This process is known as trust administration. Thus, a Living Trust can completely replace the need to have a Will.

Things to Consider When Deciding Between a Will or A Living Trust.

Here are just a few things to consider when deciding between choosing a Will or a Living Trust plan.

(1) Where do you live?

Generally, probate and estate administration costs, taxes and trust administration related expenses vary between states. Some states have costly and lengthy court involved probate processes and it may be more affordable if you had a Living Trust instead of a Will. Other states have a very efficient probate process where having a Will can be a good decision.

Some states also have a simplified or streamlined estate administration procedure where depending on the size of the estate, the probate process can be less costly and burdensome.

(2) What do you own?

To benefit from having a Living Trust and avoid the probate process and the court systems, your Trust will need to be funded during your life. This means that your assets will need to be transferred or assigned into the Trust while you are living. Assets such as real estate, bank and brokerage accounts, stock and investment accounts, business interest and other assets will need to be transferred into your Trust. With a Living Trust, active management of Trust assets is needed.

There is no asset transferring process when you have a Will. However, you will need to review the ownership of your property and the current beneficiary designations for your accounts to make certain it coordinates with the provisions of your Will.

(3) Who are you?

If you are someone who likes to have all your property “centralized” and feel comfortable managing it yourself (or having others manage individually or alongside you), then a Living Trust can be a resourceful estate planning tool for you. With a Living Trust, you appoint trustees to manage the Trust property, and with a properly funded Trust, you can also plan for future incapacity issue because the trustees can continue to manage Trust property even when you are unable.

If you are not concerned about consolidating your assets within a Trust or avoiding the probate system, then having a Will may be an appropriate estate planning tool for you. 

Both the Will and Living Trust does accomplish the objective of distributing your property upon your death according to your wishes.