Many people believe that a will is the only way to distribute their assets upon their death; however, this is not necessarily true. There is also something called a revocable living will, or a trust, which is gaining in popularity among the baby boomers. There are several reasons why trusts are being more widely considered, which we will discuss in further detail below.
What is a Trust?
A living trust (sometimes called an “inter vivos” or “revocable” trust) is a written legal document through which your assets are placed into a trust for your benefit during your lifetime then transferred to designated beneficiaries at your death by your chosen representative, called a “successor trustee.”
It’s called a “living trust” because it is established while you are alive. It is “revocable” because as long as you are mentally competent, you can change or dissolve the trust as often as you want, at any time you want. You can also be more creative with the distribution of your assets than with a will. You can designate that your assets be portioned out over time and in amounts that you specify, rather than one lump sum to be distributed after probate like in a will.
What is a Will?
A will on the other hand, is an executed legal document with a set distribution plan, overseen by your executor, who distributes your assets according to your exact wishes, to be distributed once, at your death. With a valid will your estate will go through probate, which are the court proceedings through which your assets are distributed according to what is written in the will. This can often be a lengthy and drawn out process.
Why a Trust?
One of the main reasons people decide to have their assets distributed with a living trust is to avoid probate. Trusts will not go through the probate court, which means a faster distribution to your heirs. Also, trusts are private because they do not go through probate like wills. Probate courts are a matter of public record; therefore, every will is read into the record of the court and all your final wishes are made available to the public. In addition, the probate court can take many months to complete the distribution of your estate.
Furthermore, the property must go through probate in the state it is located. So if you have a home in another state it must go through that particular state’s probate court, thus adding additional delays to the distribution of those assets.
What if I don’t have either one?
If you don’t have a trust or a will; then the state will distribute all of your assets according to your state’s intestacy laws. Usually that means transferring all your assets to a living spouse or the closest living heir, which may or may not be what you want. Also, if you have minor children and no living spouse, the state will determine who will be their legal guardian.
Which costs more?
It really depends on your preferences whether a trust is right for you. While a will often costs less to create initially, a living trust can possibly save your estate money at your passing. By avoiding the costs of probate court which are usually taken out of the estate, a trust can save your heirs money when your estate is distributed.
Also, certain trusts can avoid some estate taxes; however, it is worth noting that this is only for very large estates (5 million dollars or more). Another important note, it is recommended that you have a living trust in addition to a will. For example, if a trust is created and you have don’t have a will, in the event you obtain additional assets that are not included in that trust, at your death the state will determine how they are distributed.
I have no idea which to choose, what do I do?
A will or a trust should not be an either/or proposition. You shouldn’t choose a trust over a will and vice versa. Ultimately, it depends on your financial situation; the general rule is that the larger the estate the more important it is to have a living trust. But at the very least everyone should have a will, they are inexpensive to create and can give you the peace of mind that comes with knowing your wishes will be carried out at your passing. Because there are various benefits to trusts, people do choose to add them in addition to their will.
Bottom line, although trusts are typically associated with more wealthy people, this is no longer necessarily the norm. Due to the various benefits of living trusts people of all income brackets are starting to consider trusts as a supplement to their will. If you are person who values their privacy and want to save your heirs some time and money, a trust may be right for you.