What Are the Differences Between a Will and a Living Trust?
When people start working on their estate plans, they often confuse the terms “will” and “trust”, so we’ll be discussing will and living trust differences below. These actually both play very important and distinct roles in estate planning. The right choice for you will depend on your individual situation and preferences.
What Is a Will?
A will is a signed written document that details how your assets should be split up upon your death. Since it won’t go into effect until you actually die, it can be modified at any time during your lifetime, which is beneficial should you divorce, remarry, or have additional children. Your will should identify the “executor” of your estate. This person will file the will with the probate court and, once finalized, distribute the assets according to the terms that you have outlined.
What Is a Living Trust?
A living trust is a legal document that is created during your lifetime, and it takes effect as soon as it is signed by all relevant parties. The trust is funded by real estate, investments, checking and savings accounts, and other financial assets. You’ll manage these assets during your lifetime (unless you’ve named someone else the trustee). When establishing a trust, you can choose between either a revocable trust or an irrevocable living trust.
- Revocable living trusts are chosen by most people because the terms can be changed at any time by the grantor, the person who has created and funded the trust. This individual will usually appoint a successor trustee to manage the trust if they die or become mentally incompetent.
- Irrevocable living trusts are far less common since they cannot be altered once they’ve been signed. Once funded, the property in the trust is left in the control of the trustee. These kinds of trusts can be beneficial for some high net worth clients, but most people will find that a revocable living trust will better suit their needs.
Will and Living Trust Differences
Here are some of the most notable differences between a will and a living trust that you should keep in mind when creating your estate plan.
Property that is placed in a will does require the beneficiaries to go through the probate process to legally transfer the assets of the estate. It can take months to finalize the will in probate, leaving the assets inaccessible for your loved ones. They will also have to pay court and attorney fees, which can get quite expensive if your will is tied up in probate for an extended period of time. The terms of a will also become public record for anyone to read, while a living trust will remain confidential. This can be a great benefit for individuals who value privacy.
Another advantage to using a trust over a will is that you can avoid the probate process altogether. A trust will identify who will own your assets upon your passing. It can be used to hold property for beneficiaries under defined terms, such as for minors or other relatives you worry would be irresponsible with the property. The trust can pay for the education, medical, and living expenses of the beneficiary until they reach the age you have specified in the trust. At that time, they would then have full access to the assets that you have left behind for them. Your successor trustee will be responsible for managing the trust under these conditions.
Covered Assets and Property
Including property and other assets in your will can ensure that they go where you want them to go when you die. A will can be used to designate beneficiaries for:
- Real estate property
- Funds in checking, savings, and money market accounts
- Valuable assets like cars, jewelry, furniture, and artwork
- Other personal property
However, a will cannot include assets that contractually pass down to a beneficiary upon your death, such as life insurance policies, retirement plans, and stock and bonds. These types of assets would need to be included in a living trust, which can distribute any type of property that it has been funded with.
If you’re a parent, it is important to use a will to appoint a guardian of any minor children you might have in the event that both you and your spouse pass away. Otherwise, the courts could select someone who you may not have wanted to raise your children. A living trust alone cannot be used to name a guardian, but you can use a pour-over will in conjunction with your trust to designate one.
Many people also use a pour-over will to ensure that any property outside their trust is transferred to the trust upon their death to be distributed to their heirs. This can help account for any property they don’t get around to transferring to the trust before they die. However, these assets will be subject to probate court and will likely take longer for the beneficiaries to access, so it’s essential to regularly review your estate plan.
A revocable living trust can include instructions on who should manage your affairs should you become incapacitated. This person should be someone you can trust, like a spouse, business partner, or lawyer, since they will be managing your estate matters on your behalf.
If you were to become disabled without a trust in place, your loved ones would need to go through the courts to have a guardian appointed to handle your estate, which can be expensive and stressful for loved ones. A trust can help you avoid this scenario, whereas a will can do nothing for your family until you have passed away.
Your Local Estate Lawyer in Bakersfield
For help creating your estate plan, turn to the Law Office of Kyle W. Jones. We know how important it is to prepare for the future and protect your loved ones should the unexpected happen, so we will work with you to ensure that every detail is accounted for. Contact our firm today to get started. For additional/quick resources, visit our Youtube channel.