When it comes to matters of estate planning, there are generally two tools that are most often discussed: revocable living trusts, and the last will and testament. However, choosing between them is not completely straightforward – they each have their benefits, drawbacks, and overall effectiveness depends largely upon your financial situation and a few other factors.
There are times when living trusts are far better than wills, and times when a will is more convenient, perfectly sufficient, and capable of legally ensuring certain things that cannot be promised or demanded in a trust.
Estate planning is the art of determining which is best, and to what degree, and for what purpose. Sometimes, the best answer is not to choose between them, but to use their combined potential in just the right way. At other times, it is much easier to keep things simple, and negate your legal costs.
If you need help deciding which is better, the most important piece of advice is to go contact a local law firm and ask for a consultation with someone specializing in estate planning for retirees. However, it never hurts to learn more – and with these pointers, you will have a much better idea of what wills and living trusts do, and in what general situations they are most applicable.
A will is a document that details, in simplest terms, what should happen to your belongings after your death. More specifically, it tackles the distribution of your assets among your loved ones, and gives you the ability to determine who might become ward over your child.
When a will goes into effect after a person’s death, a special court is used to legitimize the will and choose an executor to ensure that it is adhered to. This is the probate process, and it can take more than a year. The probate process is also typically the time for families to contest a will. If there is strife and disagreement between family members, then the probate process is meant to help air out these issues and get to the truth of what the decedent’s wishes were.
If your total estate is small enough, most states let you opt for expedited probate, which allows you to bypass most of the probate process and execute the will more quickly.
Living Trusts Explained
A living trust is an estate planning document that also doubles as an asset management tool. Unlike a will, which only goes into effect once someone has passed, a trust goes into effect immediately, and acts as a collection of assets into which wealth and property can be funded into. Essentially, you can change the titles and names on everything you own to the name of your trust, even feeding into it your half of a property on co-owned assets and homes.
With you as the creator of the trust, you can assign beneficiaries to your trust, who will typically gain control over their respective assets either after you have died, or if you have been permanently incapacitated. A trust also gives you much greater control over the exact distribution of your assets – for example, instead of letting your child inherit everything they are entitled to all at once, if they are a minor, you can grant them a certain amount each year for a decade before releasing the entirety of their inheritance, to make life easier on them and remove some burden.
Most people opt for a trust because it completely bypasses the probate process. Creating a trust requires more effort than a will, but if you have a substantial amount of wealth to protect and pass on, then it may be very worth it.
Probate: When It Really Matters
The probate process can be to your benefit, if you need to give your family the space and time to settle things. It can also be a non-issue, if your estate is the right size. Or, it can be a massive hindrance, and overcoming probate is best done through the combination of a trust and a pour over will.
Choosing between a trust and a will is a largely dependent upon your estate, and what a probate process might mean for you.
More to Consider
There is more to estate planning than a trust and a will. Beyond these two basic options, there exist a myriad of legal tools available to anyone, with several functions. For example: while a living trust can ensure that your assets are transferred to your beneficiaries upon your presumably permanent incapacitation (a vegetative state, for one), a trust does not transfer your power of attorney, or help you give a person the right to make medical or financial decisions on your behalf while you are still technically alive.
A durable power of attorney, however, grants this. Furthermore, TOD (transfer on death) deeds can help you transfer assets such as homes and vehicles without the use of a will or a trust. And if you have pets, then there are ways to account for your pet(s) and ensure that he or she gets a loving home without being sent to the shelter, as well as ensuring that a part of your financial wealth goes towards taking care of your pet after you have passed on.
At the end of the day, the choice between a will and a trust lies in whether the probate process is something you need to avoid, and it depends on what your intentions are towards your assets and their role in your legacy.
Beyond that, however, estate planning can be much bigger than deciding between a will or a trust. In fact, it is smart to incorporate both into your plan, utilizing the power of a pour over will to ensure that any new assets not fed into your trust are poured over into your trust.
Before making any rash decisions, it is best to contact a financial adviser and a legal expert to discuss your situation, your circumstances, and take everything into account – from financial standing to personal relationships and your financial and social condition within the foreseeable future – so you can make the most informed decision possible, and leave behind something you and your children can be proud of.