Protect Your Legacy: Will vs. Living Trust for Estate Planning
Need help with asset management and protection for end-of-life planning?
The first thing that comes to mind is a will but a living trust may be the better option. However, comparing living trust vs. a will doesn’t always produce straightforward answers.
The main difference is that a living trust takes effect immediately after creation, whereas a will becomes a legally active document after death. This leads to different taxation and inheritance processes.
Let’s explore the nuances and benefits of each arrangement in this detailed guide.
What Is a Living Trust
A living trust is a legal arrangement where you transfer ownership of your assets to a trustee, typically yourself at first and then to someone else, to manage during your lifetime.
When you pass away or become incapacitated, the trustee distributes the assets based on your instructions.
Understanding how to set up a living trust will help with estate planning and make sure your assets are managed according to your wishes. But before that, let’s shed some light on the two main types of living trusts.
Types of Living Trusts
There are two primary types of living trusts:
- Revocable
- Irrevocable
A revocable living trust allows you, as the grantor, to maintain control over the assets, giving you the ability to modify or dissolve the trust during your lifetime. A major advantage of a revocable living trust vs. a will, which goes through probate after your death, is the simplified and more direct control over asset management and distribution.
On the other hand, an irrevocable living trust typically involves assets that cannot be easily retrieved once transferred into the trust. The conditions of an irrevocable trust could be altered by obtaining the beneficiaries’ consent and, in some cases, a court order.
This type is often used for tax advantages upon asset distribution or asset protection. However, they are more complex to set up and maintain.
The choice between a revocable vs. irrevocable living trust ultimately depends on your needs. An estate lawyer can advise which settlement fits your estate best.
The Difference Between Wills and Living Trusts
Understanding the difference between a trust and a will is key to effective estate planning. Here’s a direct living trust vs. a will comparison to determine the best approach for managing and distributing your assets.
| Will | Living Trust | |
| Function | Directs how your assets are distributed after death. | Manages and distributes assets during lifetime. |
| Probate Avoidance | No; goes through probate. | Yes; generally avoids probate. |
| Asset Management During Lifetime | Managed by you. | Managed by the trustee. |
| Cost | Generally less expensive to set up (approx. $300 – $1,000). | Generally more expensive to set up (approx. $1,000 – $3,000). |
| Complexity | Generally simpler to set up; straightforward documentation. | Can be more complex to set up; involves detailed drafting and funding of the trust. |
Trusts could be established without a lawyer but are considerably more complex. On the other hand, if you know how to write a will, you can do so without legal professionals and extra expenses.
All the same, it is highly recommended to consult a lawyer to ensure your will covers everything that it should
Will vs. Living Trust: What’s the Right Option for You
When deciding between a will or a trust for estate planning, consider these key factors:
- Size and complexity of estate — A will may be sufficient for small, straightforward estates. However, for larger or more complex estates, a living trust can provide additional benefits.
- Need for asset protection during a lifetime — If you want someone to manage your assets in case of incapacitation, a living trust provides this support.
- Privacy concerns — Probate is a public process. If maintaining privacy is important, a living trust can keep your estate details confidential.
- Probate avoidance — One of the advantages of a living trust, is that it avoids the probate process, potentially speeding up the distribution of assets and reducing associated costs.
- Cost of setup — While a will is generally less expensive to set up, a living trust usually involves higher initial costs but may save money in the long run by avoiding probate fees.
Comparatively speaking, wills are simpler to create and maintain, but the tax benefits and practical implications of a living trust may benefit larger estates.
Estate Planning Considerations
Besides a will or living trust, there are a few other tools for more comprehensive estate planning beyond a will:
- Beneficiary designations — Assigning beneficiaries directly to retirement accounts, life insurance policies, or payable-on-death (POD) bank accounts helps these assets bypass probate, streamlining the process and ensuring they go straight to your loved ones.
- Power of attorney — This crucial document allows you to appoint a trusted person to make financial or medical decisions on your behalf if you become incapacitated, upholding your wishes even if you can’t act personally.
- Digital estate planning — As more of our lives and assets become digital, it’s important to include digital estate planning in your strategy. This involves designating access to online accounts, digital assets, and personal information. Make sure that your digital footprint is accounted for by providing clear instructions on how to manage or transfer your online presence and digital assets.
End-of-life planning has other aspects, but effective asset management will benefit your loved ones directly and, often, immediately.
Conclusion
Both living trusts and wills are valuable estate planning tools, each serving distinct purposes. A will provides clear instructions for asset distribution after death, while a living trust manages assets during your lifetime and generally avoids probate.
The right option depends on your specific needs and goals.
Taking control of your estate planning is crucial to be certain your wishes are realized. What’s more, it alleviates the burden on your loved ones after your death.
Compare living trust vs. will, talk to an estate lawyer, and make informed decisions for a well-managed estate.
