Estate planning allows you to decide, among other things, what will happen to your assets once you pass away. Most people are familiar with the “last will and testament,” a document that gives you a chance to specify who will get what. A living trust is another type of legal arrangement that can also help you give assets to beneficiaries.
Wills and trusts have several key differences, but both can facilitate asset distribution. Below, we review what each tool can do and what you should think about when deciding what to incorporate into your estate plan.
When you write your last will and testament, you can state who will receive your assets, who will care for your minor children, and who will serve as your personal representative during probate. The document’s instructions for asset distribution will be followed near the end of the probate process.
Trusts are customizable vehicles that can be tailored to suit many types of goals. A revocable living trust can be used to manage asset distribution throughout your lifetime and after you are gone. You will name a trustee to oversee the trust assets and ensure trust instructions are honored. Assets can be distributed to your chosen beneficiaries when specified conditions are met.
Both wills and revocable living trusts are modifiable, meaning you can change who will receive what so long as you are mentally competent. Neither tool can be adjusted once you are no longer of sound mind.
Wills are a matter of public record, while trusts remain private. Anyone will be able to review probate records and see your will’s contents, including your list of beneficiaries. A trust’s contents are only known to you, the trustee, and the trust beneficiaries.
Trusts offer more flexibility and control than wills. With a will, you can only decide who will receive a particular asset or set of assets. You will generally have minimal control over when the beneficiary will actually receive the asset(s). The beneficiary will need to wait for the probate process to play out before the intended bequeathal can take place. (An exception is if you are leaving assets to a minor, in which case you can select a custodian to hold the assets until they come of age.)
In a revocable living trust, you can generally transfer assets whenever you please. You might decide that your beneficiaries will receive their inheritances as soon as you pass away. You could also require the trustee to hold assets until certain conditions are met. For example, you might only transfer monetary assets to your children once they have graduated college.
Assets placed in trusts are in most cases exempt from probate. This can dramatically simplify the estate settlement process and is a major advantage to using trusts over wills. Your trustee will not need to wait until near the end of probate before they can distribute assets to your beneficiaries. Furthermore, then an estate goes through probate, certain assets may need to be liquidated to satisfy outstanding debts, which can threaten planned inheritances. Placing assets in a trust can help avoid this outcome.
Wills are more easily contested than trusts. In probate, any interested probate can contest your will’s enforceability. A contesting party can claim the will was not properly validated, created under duress, forged, or signed when you were no longer mentally competent. Probate will not proceed until these conflicts are resolved, and your will may be thrown out if it is successfully contested. Trusts are often less vulnerable to challenges, though beneficiaries and heirs still have the right to contest them.
Trusts are more expensive than wills. They cost more to create, and you will need to compensate a trustee to manage the trust on your behalf.
Finally, only wills let you name a guardian for your minor children and a personal representative for your estate. Trusts do not touch the probate process, so they cannot accomplish these tasks.
It may be in your best interest to create a revocable living trust and a will. Both are useful tools and important parts of any comprehensive estate plan.
You should consider using a revocable living trust to avoid the bulk of probate and retain greater control over asset distribution. You have the option of serving as your own trustee until you pass away (or become incapacitated), at which point a chosen successor trustee will step in to manage the trust.
With most of your property placed in your revocable living trust, you can then use a “pour-over will” to “catch” assets that are not in your trust at the time of your death. Your will can indicate that all remaining estate assets should be transferred to your trust once you pass away. You can then use your will to name a guardian for your minor children and a personal representative to manage probate.
Keep in mind that your unique circumstances may warrant a different approach to your estate plan. In addition to a will and revocable living trust, you may wish to explore charitable trusts, irrevocable trusts, life insurance trusts, special needs trusts, and more. Our experienced attorneys at Cianci Law, PC can walk you through your estate planning options and implement the tools you need to obtain peace of mind. We know how to implement enforceable documents and will take steps to ensure your estate plan protects your loved ones, your financial security, and your wishes.
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