What Is The Difference Between a Living Trust and a Last Will?
Even though it is unpleasant to think about dying, it is essential to adopt specific steps to guard your assets before that moment comes. Living trusts and wills are two estate planning options created primarily to help you plan for the inevitable.
A Will is considered to be an executory document, meaning that it can be changed at any time up to the time of your death, but only has effect after you die and only after the Probate Court is satisfied that it is your Will. Yes, a Will requires probate. On the other hand, a Trust focuses on the handling of your assets both during your lifetime and distributing your assets after death.
What is a Living Trust?
A living trust is a legal document by which you or your designated alternate, acting in the capacity of a Trustee, are able to manage your assets during your lifetime and transfer your assets after your death. The trust’s ownership can either lie within your management or someone of your choosing.
A Trust is very much like a corporation in that it is a creation of local law. A corporation begins its existence by the signing of its Articles of Incorporation. A Trust begins its existence by the signing of a Trust Agreement. A corporation is managed by its Board of Directors while a Trust is managed by its Trustee. During your lifetime, you are the Trustee, and in the Trust Agreement you select a Successor Trustee to act if you become incapacitated or if you resign or die.
A corporation owns assets and does business to produce dividends for its owners, the shareholders. A Trust owns assets for the benefit of its beneficiaries. While you are alive, you are the primary beneficiary, and you are able to designate your beneficiaries in the event of your death.
While largely created for the duration of your lifetime, a living trust also can continue to be effective following your death. The Trust may continue if the trust maker has chosen to terminate it at a specified date, or the occurrence of a specific event, such as a child attaining a certain age.
Successor trustees will also be responsible for disbursing the trust’s funds to named beneficiaries after your passing. This means the fate of your trust will, in the end, rely on your own wishes.
What investments can you transfer into a trust?
You can prepare the succession of bank accounts, stocks, real estate, as well as life insurance within a living trust. Certain assets, though, cannot be transferred to a trust such as qualified retirement funds. All Trust assets are required to be titled under the trust’s name. That is precisely how a Trust avoids the need for Probate. Since your assets are no longer owned by you as a person because they are now in the name of your Trust, probate is unnecessary. After you die, the Successor Trustee has the authority and ability to carry out the terms of the Trust and to distribute the assets to the beneficiaries. This occurs without Probate Court supervision.
What is a Last Will?
A Last Will and Testament is the document that designates what will happen to your estate and assets after your death. It is a legal document that specifies your final wishes, especially those regarding any distribution of assets and the proper care of any children.
Anything you may include in your last will may vary, but usually will consist of some of the following information:
- A Personal Representative or Executor: In charge of handling your estate during the probate process and managing your estate according to your will.
- Beneficiaries: The individual or individuals who will inherit your property and assets.
- Information about Your Assets: Such as bank accounts, location of assets and other important info, in order to assist your personal representative or executor to streamline the process of figuring out exactly how much your estate is really worth.
- Designated guardians and conservators for your children: If they are minors, this is often an important part of a will.
A will does not immediately go into effect when you pass away. Instead, it must first pass through probate. The biggest misconception in the law is that most people think that after you die, your Will is read and your assets go to the people that you name in your Will. While that statement is true, your Will is only effective when it is accepted by the Probate Court as your Last Will and Testament. Yes, a Will must go through the probate process. In fact, the word “Probate” means “proving the Will”.
Who Should Get a Living Trust?
Anyone, young or old, who has assets and wants to avoid the intervention of the Probate Court should consider a Living Trust. Living trusts offer an additional layer of protection for assets such as real estate, checking and savings accounts, as well as investments like mutual funds.
A living trust is often a safety net in circumstances concerning health issues and incapacitation. If you are not capable of managing your trust’s finances, your designated trustee will be able to manage it in your absence or during your incapacity. This can prevent the courts from appointing someone to take care of your estate. Living trusts also permit you to leave your assets to your minor children with the control and management of those assets withheld from the children until they reach an age that you feel is appropriate for them to be in control.
It is important to understand that both wills and trusts are beneficial documents that will eventually satisfy your financial wishes. In fact, we recommend that you have both in place.
Should I choose A Last Will or a Living Trust?
A Living Trust, although a complex document, allows you to provide additional security for certain assets, eliminates the time and expense of Probate, and prevents Probate Court interference with the control of your assets. If you have minor children, a Living Trust allows you to select an appropriate age or time for a beneficiary to receive your assets. A Living Trust provides complete privacy and allows for a quicker distribution of assets to the beneficiaries. On the other hand, a Last Will and Testament, although a simple document, may cost much more than a Living Trust because a Will Mandates Probate. That Probate process will take from 6 months to 2 years or more to complete and will cost from 4-10% of the value of your estate. Additionally, Probate is not private. All Probate estates are public records and all proceedings are open to the public.