Will Versus Living Trust: Understanding Estate Planning Options
Estate planning is an important process that should be taken seriously. Estate planning ensures that your property and assets are distributed according to your wishes upon your death, and can also address other important decisions, like who is going to care for your minor. Despite the importance of estate planning, over 70% of American adults do not have an estate plan. When estate planning, it is important to know the difference between the different legal documents that are available to you. The two most common documents in an estate plan are a will and a living trust. Both documents allow you to set the terms for the distribution of your property after you pass away; however, the differences are significant.
WillA will is a written legal document that sets out a plan for distribution of your assets upon your death. Upon your death, your designated executor will oversee this distribution process and nothing will happen until you pass away. A will is the most basic way to plan an estate. A will can be very easy to create and offers a lot of flexibility if you have a spouse, minor children, or others who you want to support after your death. A will allows you to plan for more personal matters too, such as funeral arrangements, how your children should be raised, care for surviving pets, or anything else you might want to address.
A will, however, can be financially cumbersome to the beneficiaries of your estate. Your estate will incur federal estate tax liability and beneficiaries of the estate will be responsible for income taxes and inheritance taxes. There are also privacy issues with wills, as they become public records once filed; the public is allowed to access and review wills during and after probate. Probate is the court-appointed process of reviewing your estate to ensure sure that your will is acted on appropriately and does not violate any laws regarding how property is distributed. Probate opens the possibility for challenges against the validity of the will, which can significantly impact your wishes, as outlined in your will.
TrustA living trust, also called an inter vivos or revocable trust, is a written, legal document in which you transfer your property into a living trust for your benefit during your lifetime, and then, for the benefit of your designated beneficiaries upon your death. As the trustee of your living trust, you have complete control over the living trust’s assets including the power to use the trust assets as you see fit and to change, amend, or revoke your living trust at any time while you are still alive. When you die or become incapacitated, the successor trustee selected by you takes control over the living trust.
A living trust offers many of the same benefits as a will. Unlike a will, however, a living trust allows you to protect your financial privacy by allowing you to completely avoid the probate process. Only the beneficiaries of a living trust know how much revenue the trust generates, and only the trustee knows the full extent of the trust’s assets. Living trusts also avoid traditional estate taxes, while still allowing you to take advantage of certain tax breaks while you are alive.
Living trusts, however, are limited in scope and can only manage and pass on assets, such as personal items, real property, money, securities, etc. Unlike wills, living trusts cannot arrange care for minor children, and do not allow for the planning of personal matters, leaving these matters to either a will or the probate process. Living trusts are generally more expensive than wills, and while a living trust allows the estate to avoid probate entirely, the court has no way to monitor the estate for potential fraud or abuse.
Because of the differences between a will and a living trust, a good, comprehensive estate plan typically includes both documents, which can be a complex process. To find the perfect estate planning lawyer for you, quickly post a short summary of your legal needs on Legal Service Link, and let the perfect attorney come to you!
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