It can be difficult for many people to think ahead to a future where they’re not around. Around 57% of adults don’t have any estate planning documents in place, like a living trust or will. While confronting your mortality can be challenging, it’s an essential part of financial management and ensuring our loved one’s security.
If you’ve started researching estate planning, you’ve likely seen two terms used a lot: living trust vs will. It can be difficult for the average person to differentiate between the two.
This guide will discuss what each document is so you can make the best choice for what you need for your life.
What Is a Living Trust?
A trust is a document where a trustee is appointed to manage and distribute the trust’s property after you pass away. This ensures your assets have legal protection and they’re distributed according to your wishes. Trusts help reduce paperwork, save time, and aid in reducing or avoiding estate or inheritance taxes.
A living trust is created while the trustor or the property owner is alive. It can be changed during the lifetime of the trustor. The trustor will maintain ownership of the property and assets held by the trust while they’re alive.
The trust then goes into effect when the trustor passes away. With a living trust, the property and assets go to the beneficiaries outside of probate court. There aren’t any attorney or court fees after a trust is put in place.
Irrevocable and Revocable Trusts
Another term you’ll see is a revocable living trust. That means the trust can be terminated or changed during the lifetime of the trustor. If the trust is irrevocable, that means it can’t be changed once it’s established.
A testamentary trust is a trust that’s created by your will’s terms after you pass away. The will determines your testamentary trust’s guidelines. For example, it can outline that you want a trust created to care for your minor children until they’re over the age of 25.
An irrevocable trust can be created to disburse a portion or all of an estate for charitable purposes. It also benefits from specific tax treatments.
For example, a person might fund a charitable trust with a greatly appreciated asset or stock. When that asset is sold, the owner will receive a large tax bill. By using it to fund a charitable trust, the transaction is tax-free when sold by the charity.
What Is a Will?
A will is a legal document that states how you want your affairs, property, and assets handled after you pass away. It can also have information about how you want your memorial or funeral held. While you can create your own will online, it’s best to seek help from an estate planning attorney to ensure it’s done correctly.
The following items are typically found in a will:
- List of family heirlooms
- List of debts and assets
- Contents of safe deposit boxes
- List of vehicles and property owned
You can leave your assets and possessions to charities, friends, heirs, or family members. A will is an effective document to help transfer your estate after you pass away.
One drawback is that with a will, your estate becomes part of the public record. Anything that’s left to an heir in a will has to go through probate court, which could result in legal fees.
Minor Children Guardianship
If you have any minor children that live at home, it’s essential to include in your will who will be their guardians when you pass away. If there isn’t a guardian appointed at the time of your death, your family members will have to work with the probate court to have one selected. The person who’s chosen might not be the one you would have wanted to take care of your children.
You’ll also want to think about how you want your estate distributed to your minor children. Your will can help you give direction and insight on how you want your assets handled to your beneficiaries.
While natural or adopted children do have the right to inherit, you can use a will to disinherit a child if you want to. You can also choose to, under specific circumstances, disinherit a spouse. You’ll want to check with what your state laws are regarding this.
A living will outlines what medical decisions you want if you’re unable to dictate them yourself. These documents can include:
- Advanced healthcare directive
- A medical power of attorney
- HIPAA authorization form
Can I Have Both a Living Trust and a Will?
Yes. You can have a living trust and a will because they’re two separate things.
As we discussed, living trusts give guidelines for the management and subsequent distribution of your assets while you’re alive and after you pass away. With a will, you can declare your final wishes and name guardians for your minor children.
Which Is Better: Living Trust vs Will?
A living trust will work to streamline the transferring of your estate after you pass away. It also helps avoid the costly and lengthy probate court process.
If you have minor children, you’ll want to create a will to name their guardians. It’s a critical step in ensuring your children and their inheritance is protected.
Whether a will or a living trust is better for you depends upon your lifestyle and needs. It’s sometimes recommended to have both. Scheduling an appointment with an experienced estate planning attorney will help you with your decision-making process.
Contact Smith Barid, LLC for Your Estate Planning Needs
It can be unclear whether a living trust vs will is better for your estate planning. That’s why connecting with experienced estate planning attorneys is the best way to ensure the protection of your property and assets after you pass away.
Contact us today to schedule an appointment.