You spend the majority of your adult life working hard and providing for your family. You’ve scrimped and saved, and you’ve accumulated assets over time. Naturally, you want some control over what happens to those assets after you die.
Regardless of how much or how little you have, it’s important to have an estate plan. But should you have a will, or a living trust?
Simply put, a will is a written document that outlines how your assets will be distributed after your death. It also allows you to appoint guardianship of your minor-aged children if you die before they reach adulthood. In order to be valid, the document must be signed and witnessed.
Wills are revocable documents, and they can be amended at any point in your lifetime. It gives you control over how your assets will be handled upon your demise. It also gives you the power to disinherit spouses or children (who have a statutory right to inherit), although the laws for this vary from state to state.
Many countries have similar succession laws, although the nuances of these laws vary from jurisdiction to jurisdiction. For example, Israeli Succession Law dictates that assets are bequeathed in one of two ways: by will, or by law. If there is no will in place, heirs will be stipulated by law and according to the order of inheritance. Succession laws in the U.S. are very similar in this way.
Several things need to be considered when creating a will, such as:
- Debts and taxes: These will need to be paid by the estate.
- Executor: The person in charge of distributing your estate.
- Assets: All personal property and real property, including homes, vehicles, bank accounts, family heirlooms, etc.
- Guardian: The person(s) you choose to take care of your minor children and their property in the event that both parents die. An alternative choice should also be provided in case that first person is unable to assume responsibility.
- Beneficiaries: The people you want to receive your assets.
- Pet care: The person you would like to take care of your pets as well as funds set aside for the pet’s care.
Laws concerning wills vary by jurisdiction, so it’s important to understand your local requirements.
One disadvantage to having a will is that it must pass through probate. This means that the court will have to oversee the will’s administration and ensure that the document is valid. Probate lawyers can be costly, and there’s no way to avoid this expense with the exception of a few jurisdictions.
Wills must also become part of public record, so it’s important to keep this in mind when deciding whether a will or trust is the right choice for you.
Unlike with a will, which only goes into effect after you die, a living trust will go into effect as soon as it’s created. A living trust allows for lifetime and after-death management of your property.
If you choose to serve as your own trustee, you can appoint a successor upon your death or if you become incapacitated.
Living trusts allow you to avoid the inconvenience, cost and time of probate court. Court intervention is not required, and trusts do not have to be public record. Families can avoid probate court and hiring a probate attorney.
When properly written and funded, a living trust can:
- Control what happens to your property and assets after your death.
- Avoid probate court.
- Plan for your own incapacity.
- Keep your financial affairs private.
Living trusts can be used for any size estate. While trusts are very appealing, they do have a few drawbacks. For starters, it is more expensive to create a living trust than it is to create a will. This is primarily because the trust must be actively managed once it’s created.
Trusts are also useless unless they are funded. They can only control the assets that have been placed into them. Funding is necessary, and it can be tedious. If assets have not been transferred to the trust or if you die without funding it, the trust will be of no benefit to your family. Your estate will be subject to probate, and your family may have to deal with estate tax issues.
Which is the better choice: a will, or a living trust? Ultimately, it comes down to your personal situation. If you have a very modest estate and live in a state where the probate process is not complicated, a will may be a better option. But if you’d rather avoid probate and keep your financial affairs private, you may prefer a living trust. Just be aware that a living trust must be actively managed. If you’re not prepared to do this, then a trust may not be a practical solution for you.