The first question asked by many individuals regarding estate and asset planning is “Do I even need a will or an estate plan?” Any attorney worth his salt should answer a quick “YES!” to this question. If they don’t, you should probably consider visiting another attorney. Whether you need an estate plan is a very different question than how extensive of a plan you need or what planning you can afford. Even young individuals should consider putting basic disability or medical documents in effect (check out this article).
Since everyone should consider putting a plan into place, the next major question is “Do I need a Will or a Living Trust?” This question varies from individual to individual and there is no right or wrong answer. At Wiley Law, LLC, we believe it is important to setup an estate plan with either a Will or Revocable Living trust as a centerpiece which you can continue to build your estate plan from for years into the future. There are many additional estate and asset protection strategies that should be developed as any individual’s life changes through having children, marriage, divorce, or the accumulation of cash, assets, or life insurance. Each of these additional strategies will need to work with your entire overall plan, thus it is important to put in place a well thought out trust or will at the center of your plan that continues to grow with your needs. This post will provide a basic overview of the key differences between Wills and Living Trusts. In reviewing the differences, it is important to discuss your life and family circumstances with a qualified estate planning attorney. This post does not exhaust the differences between a will and trust and is meant as an overview.
First, a Living Trust (also referred to as a Revocable Living Trust or “Rev” Trust) should not be confused with a Living Will. A Living Will is a document which sets out your directions in the event of a life threatening or permanently disabling medical situation. In contrast, a Living Trust is a vehicle for managing and holding assets during your life which then directs how those assets should be distributed or held after your death. (For more estate and asset planning definitions visit our free resources center.)
A Will, or more formally known as a Last Will and Testament, is likewise a document that describes how your property or assets should be distributed upon your death. Unlike a Trust, a will cannot hold assets and therefore upon your death your Estate will hold your assets until they are distributed.
1. Privacy & Avoidance of Probate
In most states, probate court records are open to the public, including copies of wills. This means that if you use a traditional will as the center of your estate plan, upon your death the Will is going to be submitted to your local probate court, and any member of the public can review your file. With a properly funded trust, you can keep your affairs private. All assets that are properly held in your trust will not generally be subject to probate court oversight and therefore no records of those assets will be kept in the probate court file. Further, because the distribution of assets and administration of the estate is done through your trust, it is often much quicker and more cost effective than going through the probate court.
Modifying a will is often very cumbersome and causes many problems. Many states do allow wills to be amended by creating what is called a “codicil” or other similar documents. This process is usually similar to creating a will itself, and can cause problems if it is not properly stored or does not properly conform. Many people simply end up creating an entire new will to replace an old one.
A living trust on the other hand, is a revocable trust that can be easily modified by creating amendments. Because of this, a well drafted trust can become the centerpiece of your estate plan that grows with you through your life.
3. Taxes and Creditor Protection
While you can include some strategies to lower exposure to gift and estate taxes with a Will, doing so with a trust is typically much easier. Further, because a living trust is easier to modify throughout your life, it is much easier to keep your estate plan updated as tax laws change. Likewise, while you can provide some asset protection to your beneficiaries in a Will, such protection will usually only kick in after your own creditors have first bite at your estate. Properly funded living trusts can be structured to offer greater asset protection to your loved ones.
There are many differences between living trusts and traditional wills, and the above are just some of the key differences. Not all situations are the same and while trusts certainly offer greater flexibility and ability to use better planning strategies, trusts may not be necessary or cost effective for families with simple estates. Everyone should have an estate plan in place as early as possible and should speak to a qualified asset planning attorney to learn about their options. Wiley Law, LLC offers free consultations and also has periodic seminars on estate planning. For more information, please contact one of our attorneys.