Estate planning is crucial to one’s financial journey as it ensures the smooth transfer of assets to loved ones and other heirs after an individual’s passing. This process provides a clear path for asset distribution and offers peace of mind to family members during a difficult time of grief and confusion.
When creating an estate plan, understanding the differences between living trusts and wills is essential to selecting the most appropriate tool for individual circumstances.
Below, we will delve into the critical distinctions between living trusts and wills – two primary estate planning tools. We aim to empower readers to make informed decisions about their estate planning strategy.
What is a Living Trust?
A living trust is a legal document that allows a person, known as the grantor, to transfer their assets into a trust while they are still alive. The primary purpose of a living trust is to avoid probate, which can be a lengthy and costly legal process.
There are two main types of living trusts: revocable and irrevocable.
Revocable Living Trusts
This flexible trust allows the grantor to control their assets and make changes or even dissolve the trust at any time during their life. The grantor can transfer assets in and out of the trust, change beneficiaries or modify the terms.
Since the assets in a revocable living trust are still considered part of the grantor’s estate, they are subject to estate taxes. However, the primary advantage of a revocable living trust is avoiding probate, making the transfer of assets to beneficiaries faster and less costly.
Irrevocable Living Trusts
An irrevocable living trust is a trust that cannot be changed or terminated once it is created without the consent of all involved parties or through court modifications. By placing assets in an irrevocable trust, the grantor relinquishes control and ownership of those assets. The assets within the trust are no longer considered part of the grantor’s estate and are protected from creditors and potential lawsuits.
Individuals need to ensure this process is executed accurately and thoroughly to avoid future asset distribution complications. This can only be done with the help of professionals who know the difference between a living will vs. a living trust and have extensive experience with wealth preservation.
What is a Will?
A will, also referred to as a Last Will and Testament, is a legal document that clearly outlines an individual’s wishes regarding the distribution of their properties after their passing. Apart from the distribution of assets, a will can specify guardians for minor children, create trusts and appoint an executor responsible for carrying out the terms of the will.
Types of Wills
There are several types of wills, each with their own different purposes and characteristics.
Simple Will:
A simple will is the most basic type of will and is usually utilized when the testator has a relatively small estate. It typically contains the testator’s wishes regarding the distribution of their assets to designated beneficiaries, the appointment of an executor and the naming of guardians for any minor children.
Living Will:
A living will is a legal document that outlines an individual’s end-of-life treatment instructions if they become incapacitated or unable to communicate. It should not be confused with a Last Will and Testament, which deals with the distribution of assets. A living will is also known as an advance directive or healthcare directive.
Pour-Over Will:
A Pour-Over will is established through the provisions of a living trust. This specifies how assets that were not included in the trust during the testator’s lifetime will be distributed upon their death.
Key Distinctions: What Is a Living Trust vs. a Will?
Understanding the difference between a living trust and a will is a crucial step toward setting up a stable and secure estate plan. However, determining which is the right choice for your unique situation is essential.
Let’s look at some key differences between a living will vs. a living trust.
Privacy
One of the most notable differences between a living will vs. a living trust is their level of privacy. Living trusts are considered private documents. After the grantor passes away, the trust’s provisions can be executed discreetly without public disclosure.
In contrast, wills are filed in probate court after the person’s death, and anyone can view the document and learn about the details of their estate. Therefore, it is crucial to consider your desired level of privacy when deciding between a living trust and a will.
Probate
Probate is a legal procedure that involves managing the assets and property of a deceased person. This process consists of proving the will’s validity, identifying and cataloging the assets, paying off debts or taxes and distributing the remaining property. However, probate can be a lengthy, expensive and complex process.
In contrast, creating a living trust can help you avoid probate and speed up the distribution of your assets to your loved ones. One of the main benefits of living trust vs. a will is that it can spare your heirs from the hassles of probate.
Ongoing Management
The essential distinction answering the question: what is a living trust vs. a will? The timeline of when they will take effect. A living trust is an ongoing document that can manage assets during the grantor’s lifetime. It allows establishing a trust and appointing a trustee to oversee the assets if the grantor becomes incapacitated.
On the contrary, wills only take effect after death. This means that all decisions regarding the handling of the assets will happen when the grantor can no longer take part in the process.
Understanding the critical differences between the benefits of a living trust vs. a will is crucial when deciding which option is best for a particular situation. By evaluating the privacy, probate process and ongoing management, individuals can make an informed decision that best suits their needs and overall estate plan.
Pour Over Will: Combining the Benefits of a Living Trust vs. a Will
A pour-over will is a type of will that acts as a backup for any assets that were not included or funded into a living trust. When a person dies, their remaining assets are transferred to the living trust through the pour-over will.
Benefits:
Comprehensive Asset Management:
Combining a living trust with a pour-over will allow for a comprehensive estate plan that covers all assets. While the living trust manages and distributes assets explicitly included in the trust, the pour-over will ensure that any remaining assets are appropriately managed and distributed according to the grantor’s wishes.
Avoiding Probate:
One of the main benefits of a living trust is the avoidance of probate. When assets are held in a living trust, they are not subject to the probate process, which can be time-consuming, expensive and public.
Providing a Backup Plan:
No matter how thorough one’s estate planning may be, it is always possible that some assets may be overlooked or left out of a living trust. A pour-over will be a backup plan to catch any assets unintentionally left out of the trust.
Maintaining Privacy:
Assets that pass through probate become a matter of public record, which may not be desirable for many individuals. By creating a pour-over will to fund a living trust, the details about the distribution of assets remain private, as they are managed within the trust and not subject to public scrutiny.
Considerations:
- Timely Funding of the Living Trust: To fully benefit from a living trust and pour-over will combination, it is crucial to transfer all assets you want the trust to manage into the trust. Any assets not transferred into the trust will have to go through probate, which defeats one of the primary advantages of this plan.
- Consult an Estate Planning Attorney: It is highly recommended to consult an experienced attorney to customize estate planning to one’s individual needs and circumstances. Professionals are capable of knowing the differences between a living trust and a will and can create a plan suited to your individual needs.
- Review and Update: Like any estate planning instrument, a pour-over will and a living trust should be regularly reviewed and updated to account for changes in assets, family dynamics or wishes.
Create A Solid Estate Plan with the Attorneys at Wiles Law
Creating a living trust or a will is a personal decision that depends on your financial status, family dynamics and individual circumstances. Both options are crucial for effective estate planning and wealth preservation. However, navigating the legal complexities, ensuring tax efficiency and achieving your long-term goals requires expert guidance.
At Wiles Law, we are dedicated to developing comprehensive estate plans customized to your specific needs with precision and professionalism. Our straightforward approach empowers you to make informed decisions, protect your assets, and provide peace of mind for yourself and future generations.
Trust Wiles Law to be your partner in preserving wealth and planning your estate. Contact us today to get started.