According to the US National Center for Health Statistics, the life expectancy rate for adults in this country is 78 years old.
Even though you may live a long time, it’s never too early to create an estate plan that will secure your future and those of the people you love because you never know what’s going to happen or when your time will come. Two popular estate planning tools are wills and living trusts.
Find out more from this helpful guide on the differences between a will vs living trust. Study these features and you’ll know which method is best for you.
Will vs Living Trust: What’s The Difference?
A will and living trust are two different estate planning tools that help protect and distribute your property to your family or other interested parties. Both tools come in a variety of shapes and sizes. Here are the details on each.
What Are Wills?
Wills are written documents that outline how you want to distribute your assets after you pass away.
The US Estate and Gift Tax Law allows you to disburse assets to your surviving spouse without them incurring gift or estate taxes.
The details contained within your last will should also specify how and when you want your holdings distributed to your children as well as other beneficiaries (i.e., your siblings or parents.)
Wills can also contain specific instructions for other actions such as caring for minor children or donating to charities.
You can use a last will to identify any guardians you want to assume the care of small children in the event you pass away before they become legal adults.
Certain types of wills can also spell out your special instructions while you’re still alive as well.
Living wills or advance directives let you state your end-of-life wishes for medical care in the event you can’t communicate with your doctor.
What Are Trusts?
A trust outlines a plan to allow a third party to manage your assets on your behalf. Trusts are considered a “living” article because it means managing your assets while you’re still alive.
Living trusts can identify where you want your assets to go and when your beneficiaries should receive them. Living trusts also manage your property in the event you become injured or disabled.
Revocable and Irrevocable Trust
A revocable trust allows you to revise or cancel your instructions at any point in your life.
Assets to include in a revocable living trust should include real estate, investments, and bank accounts.
Irrevocable living trusts allow you to turn over your ownership of any assets or property included in the trust and generally can’t be changed once they are set up.
Living Will vs Living Trust: Aren’t They the Same?
It’s easy to confuse the terms living will and living trust because they sound alike. However, these documents serve two different, primary purposes.
Living trusts are instruments to primarily arrange your financial affairs in the event you medically can’t make decisions and to set up an orderly process for distributing your estate after your death.
Living wills however are primarily designed to cover your medical affairs in case you can’t communicate your desires with your doctor.
Living Trusts vs Wills
Both living trusts and wills can summarize how you eventually want your property distributed once you die or become incapacitated.
However, these two planning tools have different features that aren’t the best for every family scenario. Consider the characteristics summarized below to understand these differences:
Last wills, by law, must name an executor. Executors serve in a “fiduciary capacity” to ensure that the property is distributed with the last will’s stated directions.
A “fiduciary duty” means the personal representative promises to act in the best interests of the beneficiaries to a will when they’re administering it.
Judges appoint a will’s executor who then manages and then disburses the assets. They must also appear before the judge when there are challenges to the will.
They’ll also report to the judge when they’re done dispersing the assets so that the judge can see that they followed the will’s directions correctly.
Trusts also appoint administrators who manage a trust’s assets. Trust administrators (or “trustees”) must also conduct themselves in good faith, as well.
Trustees, however, don’t require a judicial appointment to disperse the assets after a grantor dies.
Trustees can start managing any assets included in the trust right away and distribute them to any beneficiaries when the grantor dies.
Public Access to a Last Will
After your death, your will must be filed with the county probate court where you died. Once it’s filed, the contents are considered a public record.
The contents of a living trust are confidential. Only the trustees or beneficiaries can see its contents.
Advantages of Living Trust vs Will
Although every estate is different, living trusts have some advantages over wills. These advantages include:
Wills are subject to an area of law called probate. Probate law protects your wishes to distribute your property after you pass away.
The probate court oversees this distribution. The probate court will also verify your will’s validity. They’ll also monitor whether your estate pays off any outstanding bills.
Trusts aren’t required to follow the probate court process. Families with small children who want to avoid probate and courtroom trauma might find this model attractive.
Cost of Living trust vs Will
Most costs for setting up your will include attorney fees and some public recorder filing fees. You can expect to pay between $1,000 and $3,000 for a lawyer’s time.
This final fee depends on your will’s complexity. Hiring legal professionals, however, will ensure that your final testament is error-free.
Costs for setting up a living trust will depend on various factors. The type and complexity of the trust as well as the experience and expertise of the attorney you hire to draft your trust can affect the fee.
Which Estate Planning Tool Will Work for Me?
Trusts and wills both have their own set of individual features that can benefit certain types of estates. You can find more resources on these and other estate planning tools on our website.
Do you still have lingering questions? We’ll help drill down even further on the differences between a will vs living trust. We’ll help you pick the right estate plan that protects what you’ve spent a lifetime building.