When readying their estate, many people incorrectly believe that a will is their only option to pass assets on to their beneficiaries. An estate planning device known as a living trust can be a more attractive option to some due in large part to its ability to bypass probate and distribute the trust assets quickly. However, a living trust is more expensive and time consuming to create than a traditional will. In order to pick the right estate planning document for your family, consider the below comparison.
What is a living trust?
A living trust is a type of estate planning tool that allows a person’s assets to be put into a trust for their lifetime. At the time of death of the trustor (the person whose assets are placed inside the trust), a third party, known as a successor trustee, distributes the assets within the trust to the trust’s beneficiaries. Once all the assets are distributed, the trust ends.
The benefits of creating a living trust are that you are able to control the distribution of your assets after death regardless of the size of your estate, while avoiding probate and keeping the terms of the trust private.
Limitations to consider
However, living trusts do have limitations that should be considered. For instance, a living trust is more expensive than a traditional will and must be managed after its creation. Further, a living trust is useless unless it has been properly funded before the trustor’s death: funding the trust includes additional steps such as transferring real estate or other significant property. Finally, a living trust cannot be used to designate guardians for minor children.
What is a will?
Wills are simple documents that require no special language. They are relatively easy to create, can be used to designate guardians of minor children and does not require extra steps to fund the trust. However, assets transferred through a traditional will are subject to probate, which will increase costs in the form of taxes as well as delay the transfer of the assets, and cause the details of the asset transfer to be public record.
How does a living trust differ from a will?
A living trust differs from a will in several significant ways. The major difference between a living trust and a will is that:
- The living trust allows the trustor to avoid having his or her assets go through the traditional probate process to which a will is subject.
- By avoiding probate, a living trust saves time and money while preventing the terms of the trust to be public record.
- The creation of a living trust allows you to address your medical and end of life wishes and appoint someone whose duty it is to ensure that your requests are carried out.
- The designated person is also able, through the creation of the trust, to take control of your assets in the event of severe illness or incapacitation without a separate document.
- A living trust is more complicated to establish and requires the trust to be funded prior to the trustor’s death, or else the assets cannot be distributed.
The added expense and time commitment of creating a living trust can be beneficial for families that do not have minor children and wish to avoid probate while designating a trusted individual to manage the trust.