A lifetime of hard work results in material possessions and financial freedom. Sadly, when a life story concludes, a person’s accumulated estate needs to get safely divided and transferred to the next generation.
Two options facilitate the process legally, and both living trust and a will offer reasonable solutions. Traditionally, most people choose a will to designate heirs, but a living trust has gained popularity in recent years.
Both are good estate planning options, and even if your financial situation is average – you need to learn the subtle differences to come up with the best option to pass down assets to your heirs. Let’s check them both out.
What Is a Will?
A will or testament is a document that defines how your property is divided among inheritors. A will not only define future ownership of material things, but it can also grant custody of minors and forgive debts.
The will is a simpler and cheaper option that doesn’t require any ongoing management. You can write it and put it in a filing cabinet as a done deal. Generally, people do not make frequent changes, but in case of a divorce – it’s possible to revise some paragraphs and exclude the former wife or husband.
Another big plus is that no complex changes in the ownership structure of the estate are needed when formulating the document.
What Is a Living Trust?
A will becomes active only after death. Living Trust, on the other hand, is operational from the moment of admission. The trustor keeps possession of the estate while breathing. After death, the letters of the trust are put into effect by the trustee, who oversees the distribution of the possessions by the guidelines set in the document.
The living trust offers a layer of protection in case of illness. The document prevents the court from appointing another individual apart from your chosen trustee to manage your estate and bank accounts.
How Are They Different
Both tools offer ways of passing your legacy to family members, and the best choice is not universal but depends on many factors. Each legal document of property transfer has pros and cons, and you should consider the differences carefully.
Probate Avoidance
Probate is a legal process designed to conclude a person’s affairs after death. In the case of an estate left through a will, a judge has to examine the document.
These proceedings can be time-consuming and pricey. The anxiety from frequent court appearances and the costs of hiring attorneys are contrary to the original purpose of the document – to settle a property transfer.
With a living trust, there is no probate. The estate can be transferred to inheritors without any costs or interference from the law court.
Contested Claims
Some family members have an opportunity to oppose the content of the will. Lawsuits may follow, though, and expenses add up from hiring lawyers to fight the contested claims. With a living trust, the plans expressed in the document cannot be contested, which makes it an appealing option.
Guardianship of Children
Custody can be determined only with a will in the case of minors. This is important because life is unpredictable, and without a will, the premature death of parents leaves the children in the hands of the court, which has the authority to assign guardians.
The court’s decision may not be the same as what the parents would have wanted for their children. The will is the only guarantee they will be taken care of by a person of your choosing.
You cannot establish guardianship with a trust. People with a living trust have to make a will for their dependents.
Protection of Privacy
One drawback of a will is that it’s a public document. After death, anybody can inspect it and look up assets owned by a specific testator. The content of a living trust remains far from prying eyes.
Factors to Consider
Several factors influence the benefits a will or a living trust can bring to your case, and you need to examine them before choosing the best course of action for your estate.
- Location: Laws regarding probate vary greatly; things advantageous in one jurisdiction may not be in another.
- Beneficiaries: A living trust offers protection for minors and family members with special needs.
- Assets: A business can be interrupted by a lengthy probate process. In this case, trust is a better option.
- Taxes: A living trust may have estate tax breaks.
- Financial situation: Writing a will is the cheapest option, and a living trust can be more costly.
Which Is the Better Option
Wills and Living Trusts accomplish the same results. The decision between the two is a question about the process of transferring property to designated heirs.
For an average person with a house and kids, there is no need to complicate things. A will is the best option for an ordinary state of affairs. But if you own property that’s valued at a minimum of a million dollars, and your children are adults – a living trust can be an option for managing your estate in ways a will can never do.
In the end, you can get both of them in your pocket and be sure you are covered for any eventuality. They are separate legal documents that do not conflict in any way. In a legitimate conflict, though, a trust overrides a will.
Conclusion
It’s important to settle affairs in time. Wills and living trusts have benefits and drawbacks, but the logical solution is to have both documents to balance the nuances. Everybody needs a will, while a living trust is more appropriate for people with larger estates.
There are a lot of pieces to the inheritance puzzle. If you are not sure how to make a correct decision, consult a legal firm. Such entities can explain the benefits of having all your legal inheritance documentation in order and how these precisely relate to your given circumstances and plans.
