In the nonstop hustle and bustle of modern American family life, it's easy to put off thinking about planning for the end of our lives. Many people never do get around to it - according to a 2015 Harris poll, 64% of Americans do not have so much as a simple will in place to direct their affairs in the event of their death. Often, people neglect to plan because they don't know where to start, so let's start with the basics: a will or a living trust. These two legal instruments are the cornerstones of any estate plan. The right one to use depends on your individual circumstances, so here's a quick guide to understanding these documents and how you might decide which is best for you.
Wills and Trusts Defined
Will: Often called a "Last Will and Testament," a will is a written document, signed and witnessed, that directs the distribution of your property at the time of your death. You can change or revoke your will at any time during your lifetime. Wills allow you to appoint a guardian for your minor children. After your death, your will must go through a court process called "probate," which is basically a person called an "executor" verifying the will, locating beneficiaries, and overseeing the distribution of your assets.
Trust: There are many kinds of trusts, but for our purposes, let's focus on the one most commonly used for estate planning - the "revocable living trust." Also called an "inter vivos" trust, a living trust is a written legal instrument that provides for the management and distribution of your assets both while you are alive and after you die. The person appointed to manage the trust is called the "trustee," and it can be the person who created the trust (after that person dies or becomes incapacitated, a "successor trustee" takes over). Here are two especially important things to note about living trusts:
- Trusts do not have to go through the probate process that wills have to go through.
- Trusts must be "funded" to be effective. Once a trust is created, assets must be specifically placed into the trust, or the trust remains like an empty bucket.
Will vs. Trust: Privacy
As mentioned above, wills are required to go through probate. That process is a public court process and can take a fairly long time to complete, depending on the complexity of the estate, difficulty in locating beneficiaries, etc. Some states have an expedited probate process for estates totaling below a certain dollar amount, which can reduce the time and public exposure.
By contrast, living trusts are managed privately and not subject to probate; in fact, this privacy is one of the main reasons some people choose a living trust over a simple will. Typically, avoiding probate also allows for trusts to distribute assets significantly faster than a probated will.
ADVANTAGE: Living Trust.
Will vs. Trust: Control of Assets
Both wills and trusts exist for the primary purpose of giving you control of what happens to your assets after you die or become incapacitated. Both allow you to direct how specific things are distributed to specific people. A living trust provides a couple of options for control that a will does not; for example, a living trust allows you to specify how and when your beneficiaries are allowed to use the property you leave to them. You might want your children to complete college or reach a certain age before having access to the trust - wills do not allow that level of specific control.
In addition, a living trust allows you to appoint a trustee whom you know and believe will manage the trust in accordance with your wishes. When a will goes through probate, however, the court may appoint an executor who doesn't know you or your family.
ADVANTAGE: Living Trust.
Will vs. Trust: Costs
Creating and managing a living trust will typically involve more up-front expense, as well as some level of ongoing management. Additionally, while a trust can cover most of your assets and wishes, you will most likely still need a certain type of will in addition to the trust. This is called a "pour-over will," and it exists to direct the distribution of assets that don't make it into the trust for various reasons. Creating a pour-over will, while simple, will probably cost at least something in legal fees.
However, wills are not without costs of their own. During probate and any contests to the will, court costs (which can get expensive) are typically deducted from the estate's assets. Also, if your estate might be subject to estate tax, you may be able to save a significant amount of money by creating a trust with specific tax planning provisions, which a will may not be able to cover. So, initially, a will is probably less expensive, but overall costs may vary depending on probate costs and estate taxes.
ADVANTAGE: Tie. It depends on your situation.
Will vs. Trust: The Bottom Line
As you can see, there are advantages and disadvantages to both wills and living trusts - but having either one is far better than having nothing at all. If you have a fairly simple set of assets and no children, a will may be all you need right now. If you have many descendants or a particularly large estate, a living trust may fit your needs better. This article is intended to provide a basic understanding of the core components of an estate plan, but consulting with a qualified attorney about your unique situation is the best way to tailor an estate plan that best suits your needs.