Will or Living Trust?
Both wills and living trusts allow assets to pass from the deceased to the heirs, but neither document will suit everyone’s needs. To help you know which would be the better choice, we’ve outlined the differences, advantages and disadvantages to each.
Everyone has assets, even those who are at the lower end of the economic scale, and they have the right to decide who will receive those assets after they have died. People can choose to write these wishes into a will, which will be signed, dated and witnessed.
As time goes on, people divorce, they lose friendships and they dissolve partnerships, but these people may be in the will. After the relationship ends, the person who wrote the will may want to remove these people and add new ones. With a will, it’s possible to do this. Another important thing parents can do with their wills is determine who will be their children’s caretakers after they have passed away.
The Living Trust
A living trust is an instrument that has weight before the person dies as well as after. People create this document to show how property will be managed while the trustee is alive. The person who takes over matters concerning the property listed in the living trust will be the secondary trustee, and this person takes control after the trustee has become incapacitated by disability, for example, or dies. The intervention of the court is never needed with a living trust in place.
The Advantages of a Will
The advantages of a will are:
• The will is a simple document to create.
• It is less expensive than a living trust.
• A will creates a set period that creditors have to make claims on the estate.
• The property written into the will doesn’t have to change hands until after death.
The Will’s Disadvantages
The will also has some disadvantages:
• What has been written in a will becomes public after probate.
• It will likely be necessary to hire a probate lawyer to distribute the assets to the beneficiaries.
• The probate process is expensive and takes a considerable amount of time.
• A will doesn’t allow anyone to take over management of the property after a physical or a mental disability.
The Advantages of a Living Trust
Several advantages to creating a living trust are:
• Living trusts save survivors the three years it can take to move through probate.
• They save the estate 10 percent in legal fees that would otherwise be spent in probate.
• Property owned in other states isn’t required to go through the probate process in those states.
• The secondary trustee can take control of managing assets the very same day the first trustee becomes disabled without going to court.
• The terms of a living trust always remain private.
• The trustees can appoint anyone to manage the property for their minor children.
The Living Trust’s Disadvantages
The living trust has disadvantages as well:
• Living trusts require quite a bit of paperwork.
• They are more expensive to draw up than wills.
• Titles to the property will have to be transferred from the trustee to another entity, the trust.
• It may not be possible to refinance property within a living trust.
• Creditors may make claims on the property in a living trust without limitation.
• Parents cannot name a guardian for minor children in a living trust.
How to Determine Which Is Right for You
Wills and living trusts both have their good sides and their bad sides, but one or the other is right for most people. People can go about deciding which one is the best choice for them by answering the following questions.
Is an expedited probate available in your state? People who live in a state where the probate process is not complicated or as long as three years, may choose to have a will over a living trust. One of the advantages of the living trust is that it eliminates probate, but if probate is not a difficult issue, people can forgo the extra cost a living trust commands and write a will.
Will minor children be beneficiaries of the property? If so, a trust might be a better option, because the trustee can specify the time that the property may pass from the trust into the children’s hands.
Do you take care of anyone with disabilities? With a trust, the trustees can write instructions for how their heirs with mental incapacities, for example, can use the property they inherit. With a will, these people will receive their inheritances, and no one will be able to protect them from themselves.
Will you have to pay estate taxes? People can prepare for how they can limit the amount of tax that goes toward estate taxes if they will owe a large sum of money to the IRS. The answer to this question is different from state to state. It can even be different from year to year within a state.
Do you plan to take an active role in the management of your property? People who don’t want to fund their trusts by transferring their assets into it will be better off investing in a will.
The fact that a living trust limits the need for attorneys is a positive for many people. After all, lawyers are notorious for charging hundreds of dollars an hour and making their duties take as long as they possibly can. Even if people believe that a living trust is the right thing for them, they will still need to consult an attorney just to be safe. There really are moments when an attorney can be of great service, and the time to decide whether to write a will or a living trust is one of those times.