Estate planning can be really complicated and intimidating for those who don't understand the differences between the two most commonly used legal instruments: a living trust and a last will. The idea behind a Living Trust or Last Will and Testament is to help manage the scattering of your assets when you die. A lot of people are familiar with the idea of these terms, but not what they imply or how they are similar or different from each other.
What is the purpose of the last will and testament?
By preparing a final will, you can designate specific assets that will be bequeathed to specific beneficiaries. It can be configured with the distribution as you want. For example, you can leave your house and motor vehicle to one person while your old books are given to someone else and your money to someone else. An executor you designate will oversee the delivery of your property based on your will. The document can also be used to create your selection for guardianship of any minor child.
What is the purpose of a living trust?
A will is only used after you have passed away. A Living Trust is set up and implemented while you are still alive. It is revocable, which means you can make changes to it as you wish. You can transfer some or all of your assets there as a first step and have the balance transferred there upon your death by creating a Pour-over-Will. The Living Trust is used to control your real estate during your lifetime and after your death. This creates the way your investments and the income they generate are taken care of and dispersed after you die. If you become incapacitated or bedridden, the Trust may still be controlled by a successor trustee appointed by you.
What are the big differences between The Last Will and Testament and The Living Trust?
With a last will, the document becomes public after your death. It is submitted to a probate court and allows the court to hear any dispute regarding beneficiaries or arguments raised by creditors. All property owned in another state goes through probate processes in that state. In order for the last will to be executed properly, you will also want to put in place a power of attorney or guardianship to maintain the properties.
Living Trusts remains discreet after your death and none of the documents are declassified. They are also immune from the probate court and thus avoid the associated fees. Investments in other states also remain out of probate as long as they belong to the trust. Living trusts do not give automatic advice to the courts to resolve disputes between beneficiaries or creditors.
Another major distinction between last wills and wills and living trusts is your ability as a grantor to manage the trust for as long as you can or wish. A living trust allows you to appoint a successor for such a period that you are not able or willing to oversee the trust.
One of the main factors in determining which legal instrument to use is the expense. Building a final will and a will is normally less than creating a living trust. Each provides roughly the equivalent tax saving provisions. Where the big difference comes in is the probate fees. Probate fees with a last will and a will can be hefty. Since the Living Trust is not subject to probate court, there is no probate fee. This also encompasses assets contained in other states. Although the initial creation of the Living Trust costs more, it does more to reduce the costs of the assets placed in the trust.
Deciding which of these 2 legal instruments is best for you can be done by talking to a lawyer. However, it is clear that if both instruments empower you to establish how your assets will be managed immediately after your death, the Living Trust brings much greater rewards. It can be developed and used while you are living. It gives you much more control over the administration of your assets and allows you to identify a successor for the trust when you are gone. It allows your assets and beneficiaries to bypass probate court and its related costs and contents remain confidential.