Making the decision between a will and a living trust can be difficult. Both options have their own advantages and disadvantages, and it can be tough to decide which is right for you.
In this personal finance guide, we will compare wills and living trusts, looking at the pros and cons of each option. By the end of this article, you should have a good idea of which option is best for you!
Living Trust Vs Will Table of Contents
What is a Living Trust?
A Living Trust is a legal document that establishes a trust, which is managed by a trustee, on behalf of the trustor's beneficiaries. The trustee has the legal authority to manage the trust assets and distribute them according to the terms of the trust.
What is a Will?
A will is a legal document that outlines how you would like your assets to be distributed after you die. It allows you to appoint a guardian for your minor children and pets, as well as designate beneficiaries for your estate. A will must be signed by you and witnessed by at least two other people in order to be valid.
What is The Difference Between a Living Trust and a Will?
The main difference between a living trust and a will is that a living trust takes effect immediately, while a will only kicks in after you die. With a living trust, you can transfer property to your beneficiaries without going through probate court. Probate is the legal process of distributing your assets after you die. It can be time-consuming and expensive, so many people try to avoid it if they can.
What Are The Different Types of Living Trust?
There are many different types of living trusts:
- Revocable Trust
- Irrevocable Trust
A revocable trust is a type of living trust that can be changed or revoked by the grantor at any time. This means that the grantor has complete control over the assets in the trust.
An irrevocable trust is a type of living trust that cannot be changed or revoked by the grantor. This means that once the trust is created, the grantor no longer has any control over the assets in the trust.
What Are The Different Types of Will?
There are four different types of will:
- Testamentary Trust
- Living Trust
- Pour-over Will
- Holographic Will
The first type of will is a testamentary trust, which is created by a written document and typically used to distribute assets after someone dies. This type of will can be revoked or changed at any time by the person who created it.
The second type of will is a living trust, which is created during someone's lifetime and can be revocable or irrevocable. A living trust can be used to manage assets during someone's lifetime and distribute them after death.
The third type of will is a pour-over will, which is used to distribute assets from an estate to a living trust.
The fourth and final type of will is a holographic will, which is handwritten and not witnessed. This type of will is less likely to be upheld in court than the other types of wills.
What Are The Advantages of a Living Trust?
A living trust can offer many advantages over a will, particularly if you have a complex financial situation or want to minimize probate costs and delays.
With a living trust, the trustee – which can be you, a family member, or a friend – manages the assets held in the trust during your lifetime. Upon your death, the successor trustee named in the trust document takes over and distributes the assets according to your wishes.
Because the living trust is a separate legal entity, it can own property, enter into contracts, and make investments on your behalf. This can be a great advantage if you become incapacitated and are unable to manage your affairs.
Another advantage of a living trust is that it can help you avoid probate. Probate is the legal process of distributing a person's assets after they die. It can be time-consuming and expensive, so avoiding it can be a big plus.
Finally, living trusts are generally more private than wills. Wills are public documents, which means that anyone can request a copy of them. Living trusts, on the other hand, are not public records.
What Are The Advantages of a Will?
The main advantage of a will is that it gives you complete control over what happens to your estate after you die. You can decide who gets what, and when they get it. You can also appoint someone to manage your estate and make sure that your wishes are carried out.
Another advantage of a will is that it is relatively easy and inexpensive to set up. You can usually do it without the help of a lawyer, and it doesn’t have to be registered with the government.
Finally, a will is a good option if you only have a small estate. If you have a large estate, or if you own property in more than one country, then a trust might be a better option.
What Are The Disadvantages of Living Trust?
There are a few disadvantages of having a living trust, as opposed to just having a will. First, it can be more expensive to set up a living trust than simply drafting a will.
This is because you'll need to hire an attorney to help you with the process and there are also some filing fees associated with setting up the trust.
Another disadvantage of a living trust is that it can be more difficult to change than a will. If you want to make any changes to your living trust, you'll need to go through the process of amending the trust, which can be complicated.
Finally, if you have a large estate, a living trust can also be more complex and difficult to manage than a will.
What Are The Disadvantages of Will?
There are some potential downsides to having a will. First, if you have a lot of assets or your estate is complex, a will can be more expensive to create than a living trust. Also, if you have minor children, a will typically name a guardian for them while they're underage.
But if something happens to both parents, the guardian named in the will would have to go through probate court to be appointed as the legal guardian, which can be time-consuming and expensive.
Another potential downside of a will is that it's a public document, which means that anyone can request a copy of it. So if you want to keep your estate details private, a will might not be the best option.
Finally, a will only take effect after you die, which means it can't do anything to help you if you become incapacitated. If you want to make sure your affairs are in order in case of incapacity, you'll need to create a living trust or some other type of advance directive.
So, Which One Should You Use?
The answer to this question depends on a few different factors. If you have a simple estate, then a will may be all you need. But, if you have a more complex estate or if you want to avoid probate, then a living trust may be the better option.
There are also other considerations, such as whether or not you have minor children. If you do, then you'll want to make sure that their interests are protected in the event of your death.
Ultimately, the decision of whether to use a will or a living trust is a personal one. You should consult with an attorney or financial advisor to help you decide which option is best for your situation.
What Are Some Alternatives to Using a Living Trust or a Will?
Some people choose to forego using either a living trust or a will and instead use other methods to distribute their assets. For example, some people set up trusts for specific purposes, such as providing for a disabled child or grandchild.
Others use life insurance policies or retirement accounts that designate beneficiaries to pass on their assets. Still, others simply give their belongings to their loved ones while they are alive.
What Are Some Tips For Using a Living Trust?
There are a few things to keep in mind when using a living trust. First, you need to make sure that the trust is properly funded. This means transferring all of your assets into the trust. If you don't do this, the trust will be worthless.
Another thing to keep in mind is that you need to keep up with the paperwork. The trust needs to be funded, but it also needs to be managed. You'll need to keep track of all the assets in the trust, as well as who has control over them.
Finally, you need to make sure that you update the trust as your life changes. If you have children, for example, you'll need to add them to the trust. If you move, you'll need to update the trust accordingly.
If you keep these things in mind, a living trust can be a great way to manage your assets and protect your family. Just make sure that you do your homework and understand all of the ins and outs before setting one up.
What Are Some Tips For Using a Will?
There are a few things to keep in mind when using a will. First, you need to make sure that the will is properly executed. This means having it witnessed by two people who are not related to you.
You also need to make sure that the will is kept in a safe place, such as a fireproof safe or safety deposit box. You should also give copies to your executor and your beneficiaries.
Another thing to keep in mind is that you need to update the will as your life changes. If you have children, for example, you'll need to add them to the will. If you move, you'll need to update the will accordingly.
If you keep these things in mind, a will can be a great way to manage your assets and protect your family. Just make sure that you do your homework and understand all of the ins and outs before setting one up.