Posted by Dana Law Group on August 19, 2020
Every adult should have a plan in place for what they would like done with their assets after they die. Granted, it’s not the most pleasant topic to consider, but it is necessary nonetheless. When someone passes away without proper estate planning, their loved ones are subject to further turmoil as state officials then determine how to divide up their assets. Now, you probably already have some idea of what a will and/or a living trust are in terms of estate planning. But do you understand the difference and what each means for your estate?
While a will and a living trust both serve important roles in passing on your assets to your loved ones, they carry very different functions.
The main purpose of a will is to provide instructions on what you would like done with your assets after your death. You can provide specific instructions for individual items as well as name beneficiaries to your estate. If you have children who are still minors, the will can also be used to name legal guardians to care for them.
However, the will process is not always so straightforward. In order to be carried out (which will only happen after you die), the will must go through a legal process called probate. In this process, a court must determine that the will is legally valid. The laws in this area vary from state to state, but there are some things that are generally true. Not only must the will meet certain document requirements, but any outstanding debt and taxes must be settled, and all assets involved will have to be appraised before distribution.
In your will, you may also appoint an executor to carry out the will’s instructions. It’s also worth pointing out that a will only covers property and assets that are in your name upon your death. The will cannot be used to cover property held in a trust or other form of joint tenancy.
A living trust is called “living” for a reason. Like a will, a living trust outlines what you would like done with your assets if you die or become otherwise incapacitated. However, the living trust can be managed both before and after death via the appointment of a trustee. This trustee is either a person or a company that holds the assets for the beneficiary. Assets can be moved in and out of the trust as you wish. A living trust goes into effect as soon as it is created, although the assets will only be “held” in the trust until your death or incapacitation — you are still able to retain control of your estate and make changes as you see fit (providing you are the trustee while you are living).
If set up correctly, a living trust is often able to avoid going into probate upon your death.
The right choice for your own estate planning will depend largely on your personal preferences. However, those with larger estates or more complicated wishes after their death tend to prefer the greater control that comes with living trusts. Avoiding probate is also preferable to many families, as the process often drags on for months to even over a year. Furthermore, it’s worth pointing out that while wills are public documents and can be viewed by anyone, living trusts are private. Nevertheless, the benefits offered by living trusts also means they are more expensive to set up and maintain.