Regardless of where you are in life, contemplating your own death and the events that might follow is normal. We live in uncertain times, and worrying about the future is only natural. Yet what you should not be worried about is the safety of your assets in the event of your passing.
Peace of mind regarding how your hard-earned estate will be distributed after your death is something anyone deserves, and even if you have been leading a modest life with average earnings, it’s important to know where and how your belongings will pass onto your family.
For most people, this beckons the age-old question of whether to opt for a will or a living trust. Understanding the difference between both and making the right choice for your set of circumstances can mean the difference between a smooth and seamless inheritance and a small fortune wasted on getting your family what they rightly deserve.
Living Trusts vs. Wills
A living trust and a will are two separate ways in which to determine how your belongings should be distributed when you are dead. The Last Will and Testament is a document that details specifically how your belongings are distributed at the time of your death, which is when the document goes into effect. It can be amended if you are still alive to make, review and sign the changes, and one of its unique applications is the ability to determine a legal guardian if you die and leave behind minor children.
On the other hand, a living trust is a form of property management, both during your lifetime and after death. It does not simply go into effect when you, the grantor, have been declared dead, but rather enacts a predetermined distribution of assets to your beneficiaries, and appoints someone else as trustee, or manager for the living trust.
What Else to Consider
A trust gives you more control over the details of asset distribution. It allows you to control the rate at which minor children are given ownership of your assets and it allows you to manage how much access your inheritors will have to your properties and possessions after your death.
Yet while these are interesting benefits, they come at a cost – setting up a trust is not easy, and it is not cheap. It is also something you cannot start and leave unfinished – an unfunded or partially-funded trust will not ensure that your belongings will not go through a probate and lengthy, public inheritance process.
Wills are subject to the fees and drawbacks of a probate, and there are limitations to what they can accomplish. However, they are almost always necessary – to those who rely on a living trust to deal with their inheritance, a “pour over” will is necessary. It is designed to allocate assets and possessions that did not make it into the trust is used to ensure proper management of inheritance, at the cost of a probate.
For those setting up a trust, the process is lengthy and carries an upfront cost, rather than a probate. Furthermore, some states grant “informal” probates based on the total value of your estate – meaning, below a certain threshold, you could simply opt for an expedited probate after death to ensure that your inheritance makes its way to your family swiftly. If the total value of your estate lands you above the estate tax threshold, consider tax planning provisions in your estate management.
Drafting Your Living Trust
As with anything legally binding, it all starts with a document. Hiring an attorney with expertise in estate planning to help you draft your living trust is preferable. While this is more expensive than drafting the trust yourself, it will leave you with a far shorter list of potential problems and worries in the future.
Funding Your Living Trust
Once the document has been established, you need to fund your living trust by allocating your assets to it, including property, stock, valuables and more. The last step to activate the trust and make it legally official is to have it notarized and to ensure that your assets – your titles, your stock, and everything else you’ve assigned to your trust – are all transferred to the name of the trust, rather than your own name.
You’ll need a trustee (someone you can trust your life with) to honor the document in the event of your death, and store it in a safe location known only to yourself and your trustee.
Trusting the Process
One reason people shy away from setting up and funding a living trust is the paperwork and time that goes into transferring all your relevant assets to the name of the trust. And while it is true that this takes time and requires you to actively keep track of your estate and manage it effectively to keep your trust viable, there are many cases where this is simply the best way to manage your inheritance in a way that ensures the financial security of your family.
There are plenty of circumstances under which a will is a better option. But if the additional control and lack of a probate are necessary for your eyes, then setting up a trust – and setting it up correctly – is a priority.
The primary two differences between a will and a trust are that a will is on the public record, giving everyone the ability to freely enter a courthouse and check your will for a record of your assets. Enacting a will also requires probate, the legal procedure through which a will is enacted, and through which claims and disputes are resolved – the costs of which are deducted from your assets.
A trust does not require probate and is not on public record, being a private agreement. It also allows you to control how your possessions are distributed, putting restrictions on certain properties and provisioning your inheritable assets.
Estate planning is no simple matter, but this comprehensive post should give you a general overview of the pros and cons of choosing a will over a trust, and vice versa – leaving you with the confidence and necessary knowledge to discuss the matter with your own legal professional.