Estate planning is an important and everlasting gift you can give your family. However, according to a survey conducted by Caring.com in 2019, only 42 percent of American adults have estate planning documents such as a will or living trust. Proper estate planning involves making a number of critical decisions. One of the issues that many people grapple with is whether to create a will or living trust. To make informed decisions, it is important to know what these legal documents are and the differences between them. That way, you will understand the advantages and disadvantages of a will vs. living trust.
Here’s what you need to know.
What Is a Will?
A will, also known as a last will and testament, is a legal document that contains your final wishes. The instructions in your will relate to the care of your minor children—especially those with special needs—and what will happen to your estate after your death.
For a will to be valid in Massachusetts, it must meet certain legal requirements. A will allows you to:
- Appoint an executor for your will
- Name guardians to take care of your children and dependents
- Designate how your assets will be managed and distributed
- Specify your funeral and burial arrangements
What Is a Living Trust?
A living trust is a fiduciary agreement that allows you to transfer your property to your trust, which is a separate legal entity. With a trust, you will appoint a trustee who will hold the legal title of the assets for the benefit of the beneficiaries. The trustee will also carry out the instructions contained in the trust document.
A living trust is created during your lifetime and has to be properly funded to be effective. Trusts:
- Allow you to set terms regarding how the trustee will manage the assets
- Give you more control over how and when your assets will be distributed
- Come in many various types and forms to suit your specific needs
Key Differences Between a Will vs. Living Trust
There are several key differences between wills and living trusts. Understanding what sets them apart will help you make an objective comparison of a will vs. living trust and assist you in your estate planning endeavor. Below are a few differences you need to know.
While a will becomes active only after you die, a living trust comes into effect immediately—once it has been set up and funded. Unlike a will, a trust allows you to name a successor trustee who will manage trust assets in the event that you become incapacitated. This helps to protect you and your family during that period.
Cost and Effort Required
The process of establishing a trust can be complex and time-consuming and may involve more paperwork. Also, for trusts to work as intended, they need to be funded and require continuous maintenance. Compared to a will, a living trust will be more expensive to set up and maintain.
A will covers the properties that you solely own as well as tenancy-in-common interests. However, this legal document does not cover assets with a beneficiary such as life insurance policies. On the other hand, a living trust covers any property that has been transferred into it. This may include a life insurance policy—provided that the trust owns the policy.
Probate and Privacy
Whether you have one or not, when it comes to a will, there is a good chance your estate will go through probate. During this process, the court will establish the validity of the will and give the executor the legal authority to distribute assets. In the end, the will becomes a public document. On the other hand, a living trust can enable you to avoid probate, something that will help to preserve your privacy and streamline the distribution of your assets to your heirs.
Precedence and Contestability
Because of their ongoing nature, living trusts usually take precedence over wills. Similarly, trusts are less likely to be successfully challenged.
There are two basic types of living trusts: revocable and irrevocable. An irrevocable trust offers certain tax-shelter benefits that you will not enjoy with a revocable trust. If you have a sizeable estate, you can consider establishing an irrevocable trust to help you reduce your tax liability.
Will vs. Living Trust: Which Option Is Right for You?
Generally, most people need a will. However, not everyone needs to set up a trust. Ultimately, the decision over which of these two options suits you best will depend on your personal situation, needs, and goals. Fortunately, you do not have to choose one over the other; you can use the two estate planning tools together.
If you die without any of these legal documents, your property will be distributed in line with Massachusetts intestate succession laws. To ensure you have some control over what happens to your estate after you pass away, consider drafting these important documents. Lastly, making the right decisions now will allow you to achieve your estate planning goals for the future.
Partner With a Worcester Estate Planning Attorney
Now that you know the pros and cons of a will vs. living trust, you will be in a better position to create an estate plan that meets your needs. However, the estate planning process goes beyond these essential legal documents. For a solid estate plan, be sure to work with an experienced Worcester estate planning lawyer. Contact us today to book your initial consultation.