Let’s say that you’re visiting a restaurant for the very first time. You’re a health-conscious individual who has certain dietary restrictions and preferences. Every item on the menu serves the same purpose: to provide nourishment. However, things could end badly if you don’t choose wisely. It’s up to you to choose the items that fit your nutritional requirements.
Estate planning is no different. All estate planning tools are designed to carry out the same purpose: to protect your assets and designate how they should be distributed after your death. However, it doesn’t mean that you should use every estate planning tool out there. It’s up to you to select the documents that best fit your unique needs.
Here, we introduce two popular estate planning tools: the Will and the Living Trust. Again, they serve the same purpose of protecting and distributing your property. Other than that, however, they couldn’t be more different. So, what is a Living Trust vs. Will? Which one should you use? Keep reading to find out.
What is a Will?
A Last Will and Testament, or Will for short, is a legal document used to express how you would like for your assets to be distributed after your passing. You can also use a Will to nominate a guardian for any minor children, and leave instructions for what to do with your body and celebrate your life.
At Trust & Will, we typically advise individuals creating their Estate Plan for the first time to start with a Will. This document is a great and necessary foundation for a strong estate plan. However, it is one of many powerful estate planning tools at your disposal. Read more about Wills and how they work.
What is a Living Trust?
A Living Trust is a type of estate planning document that allows you to distribute assets and property to loved ones after your passing. Within this context, a Will and a Living Trust perform the same function.
However, a Living Trust is very different from a Will in the way it operates. First and foremost, any property you use to fund the Living Trust is owned by the Trust thereafter. You still get to maintain control of these assets by appointing yourself as the Trustee, although you’ll need to name a successor.
Also unlike a Will, Living Trusts do not have to go through the probate process. This means that assets can be distributed to your beneficiaries per your exact instructions. Your loved ones won’t be put through a lengthy, costly, and public court process.
Difference Between a Will and a Living Trust
Wills and Living Trusts are both estate planning documents that allow you to name beneficiaries for your assets. By choosing one or the other, you’ll have peace of mind knowing that you used the opportunity to make your wishes known.
However, these two estate planning documents have some differences. For instance, assets listed in your Will must go through probate, while assets owned by your Living Trust do not. When using a Will you can nominate an Executor, and when approved by the probate court this is the individual who is responsible for making sure that your wishes are carried out. Although you can serve as your own Trustee, you can also name a successor Trustee for your Living Trust. When you pass away, this individual can legally manage your assets on behalf of and for the benefit of your beneficiaries. For instance, this may be beneficial if you would like for your investments to grow within your Living Trust until your child reaches a certain age.
A Will goes into effect when you pass away or become incapacitated. In contrast, a Living Trust goes into effect immediately, allowing you to protect your assets during your lifetime.
What Can a Will Do (That a Living Trust Cannot)?
Of the two estate planning tools, a Living Trust may seem like the more powerful and sophisticated ones. In many ways, this is the truth. For instance, its ability to bypass the probate process offers a strong appeal.
However, there are some things that a Will can do that a Living Trust cannot. Review the below capabilities of a Will to determine if this is the better choice for you:
Name guardians for your children
Name a property manager for a child’s property
Name an Executor
Leave instructions for how your taxes and debts should be paid off
Requires witnesses to ensure that your Will is legitimate
Is relatively simple to create and thus less costly to establish
What Can a Living Trust Do (That a Will Cannot)?
The previous section discussed some unique functionalities of a Will that are not offered by a Living Trust. Similarly, however, a Living Trust also offers some unique advantages. See these capabilities unique to Living Trusts below:
Avoid the probate process
Keep your assets and family matters private
Transfers property into the Trust
Insulates your estate from court challenges
Can avoid conservatorship
Allows you to leave property to young children
Living Trust vs Will - Which One Do I Need?
Know that you can’t go wrong when choosing between a Living Trust vs. Will. Both types of estate planning documents will carry out the most important aspect of planning your estate, which is protecting your assets and making sure that they are distributed to your loved ones after your death. Either your Executor or your Trustee will help see to it as well.
Once you understand that your foundational need will be met, it’s time to pick the option that better suits your individual needs. For some individuals, a Will is a better choice, while the Living Trust is better for others. For instance, if you have dependent children, you absolutely need a Will. This is because a Will allows you to name guardians, while a Living Trust does not. The next consideration is probate. The probate process is lengthy and expensive, which can cause quite the headache for your loved ones. If you prefer to keep your estate out of the probate process, then it makes sense to set up a Living Will. This is also true if you wish to keep your matters out of the public eye.
The final consideration is the timing of your asset distribution. One of the most beneficial qualities of a Trust is that they allow you to determine a timeline for how and when your property should be distributed to your beneficiaries. Further, they allow you to set certain conditions and requirements. A probate court will distribute your assets as soon as adjudication is complete, so the timeline is out of your control. With a Living Trust, however, you maintain control. This could be an important consideration if you have young children, or would like to use your inheritance as an incentive system for your loved ones. Finally, it may be beneficial to leave your assets in your Trust for an indefinite amount of time to allow them to grow in value or avoid certain taxes.
Can I Create a Living Trust and a Will?
What is a Living Trust vs. Will? This guide helped define two estate planning tools that carry out the same goal, and yet function very differently. Each offers its own advantages and disadvantages. Each also provides several functions that the other cannot, and vice versa.
If you’ve been feeling stuck between choosing a Living Trust or Will, we have good news for you. You can use both! State laws recognize the use of both Living Trusts and Wills so that you can benefit from the advantages offered by each.
Here is an example of how you could incorporate both documents into your Estate Plan. First, you set up a Will. In this Will, you write out your final wishes, such as how you would like for your remains to be handled, and whether you’d want a funeral or other celebration of life, and what you would like for that to look like. You can also name guardians for your dependent children and even your pets. Perhaps you would also include instructions for what you would like to happen to sentimental and material possessions that do not hold value otherwise, such as your plants or your clothing.
Then, you could set up your Living Trust. You would fund this Trust with your assets and property, and create the terms of the Trust. These terms would describe how these assets should be distributed after your death, to whom, how much, and when. You can name yourself as the Trustee of this Trust so that you can manage and continue using these assets during your lifetime. You would also name a successor Trustee who will manage these assets on behalf of your beneficiaries after you pass away.
Together, a Will and a Living Trust could create a dynamic duo for your Estate Plan.
Still not feeling sure which one to use? Trust & Will can help you with that. We invite you to take our easy quiz to help you get started. By answering some simple questions, we can help you figure out which estate planning document you should start with. Luckily, both Wills and Living Trusts are documents that can be revised, meaning that you can always change your mind!
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