Estate planning can be really complicated and intimidating for those who don’t understand the differences between the two most widely used legal instruments: a living trust and a last will and testament. The idea behind a living trust or last will and testament is to help manage the dispersal of your possessions when you pass away. Many people are familiar with the idea of these terms, but not with what they imply or how they are similar or different from each other.
What is the purpose of the last will and testament?
When preparing a last will and testament, you can designate which specific assets will be bequeathed to specific beneficiaries. It can be configured with the distribution the way you want. For example, you can leave your home and motor vehicle to one person while your old books go to someone else and your cash to a third party. An executor that you appoint will oversee the delivery of your assets according to your will. The document can also be used to create your selection for guardianship of any minor children.
What is the purpose of a living trust?
A will is only used once you have passed away. A living trust is established and effective while you are still alive. It is revocable, which means you can modify it however you want. You can transfer some or all of your assets to him at the beginning and transfer the balance upon your death by creating a will of transfer. The living trust is used to control your real estate while you are alive and after you are dead. It creates how your investments and the earnings they generate are cared for and distributed after your death. In the event you become incapable 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 and Testament, the document becomes public after your death. It goes to probate court and allows the court to deal with any challenges made regarding the beneficiaries or arguments raised by the creditors. All assets held in any other state go through probate in that state. In order for the last will and testament to be carried out correctly, you will also want to establish a power of attorney or guardianship to hold the properties.
Living trusts are kept discreet after your death and none of the documents are declassified. They are also immune from probate court and therefore avoid the associated costs. Investments in other states are also kept out of the estate as long as they belong to the trust. Living trusts do not provide automatic court guidance for resolving disputes between beneficiaries or creditors.
Another important distinction between last wills and testaments and living trusts is your ability as the grantor to manage the trust for as long as you are able or willing to do so. A living trust allows you to name a successor for a period when he or she is unable or unwilling to oversee the trust.
One of the most important factors in determining which legal instrument to use is expense. Building a Last Will and Testament is usually less than creating a Living Trust. Each provide about equivalent tax saving provisions. Where the big difference comes into play is in probate fees. Probate costs with a Last Will and Testament can be substantial. Since the living trust is not subject to probate court, there are no probate expenses. This covers assets contained in other states as well. Although it initially costs more to set up the living trust, it does a better job of helping to save costs for the assets placed within the trust.
Summary
The best way to choose which of these 2 legal instruments is right for you is to speak with an attorney. However, it is clear that while both instruments provide you with the means to establish how your assets will be managed immediately after your death, the living trust provides significantly greater rewards. It can be developed and used as long as you live. It gives you much more control over the management of your assets and allows you to identify a successor to the Trust when you are gone. It allows your assets and beneficiaries to avoid probate court and its associated costs and your contents remain confidential.
