A living trust and a will are legal documents used for estate planning in the future, each with its own characteristics and differences. A living trust helps ensure that your assets reach your beneficiaries according to your wishes without going through court proceedings, while a will always involves a court process.
Because they are similar, people are often unsure which document they need and in which situations. That’s why we have prepared this text to clear up any confusion and go over a living trust vs. will, including a living trust purpose, what a will is, and in which situations each document should be used.
What is a Will?
A will, also known as a last will and testament, is a legal document that an individual—the testator—creates during their lifetime to specify how their property should be distributed after their death, and it becomes effective upon the testator's passing. The purpose of a will is to ensure that the testator’s wishes about the distribution of assets are carried out after their death.
In addition to detailing how the testator's assets should be allocated, a will can also designate an executor. The executor is responsible for managing the estate, settling debts and taxes, and distributing the assets according to the terms outlined in the will, ensuring that the testator's wishes are fulfilled.
In some cases, a will may include provisions for creating a testamentary trust after the testator’s death. This trust is established by the will and becomes active only upon the testator’s passing, ensuring the assets are managed for beneficiaries according to the terms outlined in the will.
For a will to be legally valid, it must comply with specific requirements, which can vary by state. Generally, the testator must be of sound mind and meet the minimum age requirements. Additionally, the will must be created in a specific manner, such as in the presence of a designated number of witnesses and/or notary public.
If these conditions are met, the will is legally binding, and the estate will be distributed according to the will's instructions rather than by default state laws, which apply in the absence of a will.
A living will, though similar in name, serves a different but equally important purpose. It allows an individual to outline their preferences for medical treatment in case they become unable to communicate their wishes due to incapacitation.
Unlike a will, this document becomes effective when an individual is still alive but unable to communicate their medical preferences.
Pros and Cons of Having a Will
While having a will is vital for directing how assets are handled, it comes with both benefits and drawbacks.
Let's take a closer look at each:
Pros
Clear distribution of assets. A will enables the testator to specify exactly how their assets should be distributed after death. This way, you minimize potential conflicts among family members regarding property distribution and ensure the testator's property and possessions go to the individuals or organizations they choose rather than being divided according to state laws.
Appointing an executor. By appointing an executor in the will, the testator designates a trusted person to manage the estate, execute their wishes, and handle any debts and taxes. This choice streamlines the estate administration process and provides clear guidance on who will be responsible for implementing the testator's instructions.
Guardianship for minor children. If the testator has minor children, a will allows them to appoint a guardian to care for the children if they pass away. By specifying a trusted guardian, the testator ensures that their children will be cared for by someone they know and trust rather than being placed in foster care or under the state's custody.
Funeral preferences and expenses. A will lets the testator specify their funeral preferences and allocate funds to cover these expenses. By providing detailed instructions on final arrangements, the testator ensures that their wishes are honored and eases the burden on their family by clarifying how the funeral should be handled.
Cons
Potential for challenges. A will can be contested in court, resulting in delays and increased legal costs. Disputes often arise if someone claims that the will is invalid—due to allegations the testator was not mentally competent at the time or that it was created under duress.
Not covering all situations. A will does not cover all aspects of estate planning, such as medical decisions or financial management, if the testator becomes incapacitated. Additional documents like a living will or power of attorney are required to address these needs, as the will only takes effect after the testator's death.
Risk of outdated provisions. If a will is not updated regularly, it may not reflect current wishes or changes in the testator's life circumstances, such as new family members or shifts in financial status. As a result, their assets might be distributed according to outdated terms that are not in line with the latest intentions.
What is a Living Trust?
A living trust is a legal document used by individuals, known as grantors, to manage and distribute their assets during their lifetime and after their death. The purpose of the living will is to allow the grantor to transfer the ownership of assets—such as a home, bank accounts, and investments—into the trust, which is managed according to the grantor’s instructions and wishes.
Establishing a living trust, a process also known as trust funding, begins by drafting a document that outlines how the assets will be managed and distributed. This document details the assets and names a trustee responsible for managing the trust’s assets according to their instructions.
The trustees can be the grantors themselves or appoint someone else, such as a trusted family member or a financial institution. Typically, the grantor designates a successor trustee who will take over the management of the assets if the grantor (when they are the trustee) or the trustee becomes incapacitated or dies.
Afterward, the grantor needs to determine who the beneficiaries are and how the trust assets will be divided and transferred to them upon the grantor’s death. To ensure the document’s validity, it must meet state law requirements, such as being in writing and having signatures notarized, so it is recommended to consult an attorney to ensure the document complies with all legal requirements.
Revocable vs. Irrevocable Living Trust
There are two types of living trusts—revocable and irrevocable.
A revocable living trust is a type of trust that the grantor can change or cancel at any time while they are still alive throughout amendments. This type offers flexibility and allows the grantor to modify the trust’s terms, add or remove assets, and dissolve the trust if circumstances require it.
On the other hand, an irrevocable living trust is a type of trust that cannot be changed or revoked once it has been established, except under specific conditions, such as a court
approval or consent of all beneficiaries.
Pros and Cons of Having a Living Trust
Here is a look at the pros and cons of having a living trust in place.
Pros
Avoiding Probate. One of the main benefits of a living trust vs will is that it helps avoid probate (court process) and transfers assets directly to beneficiaries.
Maintaining Privacy. Unlike a will, which becomes a public record during probate, a living trust keeps estate matters private, and all the details about assets and their distribution remain confidential.
Flexibility and Control. With a revocable living trust, grantors can retain control over their assets while they are alive.
Incapacity Planning. If grantors become incapacitated, their successor trustee can step in and manage their assets according to their instructions, avoiding the court process for appointing guardians.
Efficient Asset Management. When comparing living trust vs. will, the first simplifies the management of assets by grouping them all under one legal entity, making it easier to handle and distribute them according to grantor wishes.
Cons
Initial Setup Costs. Creating a living trust can involve legal fees for drafting the trust document and transferring assets into it. The initial cost can be higher than just preparing a will.
Limited Protection from Creditors. A revocable living trust does not offer protection from creditors or legal claims. Since the grantor maintains control over the assets, they remain responsible for claims against the grantor.
No Estate Tax Benefits. A living trust does not provide significant tax benefits, so estate taxes and other taxes apply to the assets in the trust.
Living Trust vs. Will
The main difference between a living trust vs. will is in the timing of these two documents. While a will only takes effect after the testator’s death, a living trust allows the trustee to manage the grantor’s assets during the grantor's lifetime and after their death.
Additionally, a living trust provides distributions of the grantor’s assets to their beneficiaries without a court process, thereby bypassing it. In contrast, the distribution of a testator’s assets based on their will is impossible without a court procedure, which can be lengthy.
Another difference between a living trust vs. will is privacy. A living trust allows the distribution of assets after the grantor’s death to remain private. At the same time, a will, once declared before a judge, becomes a public record.
It’s important to note that a living trust’s setup costs are significantly higher than a will. These include attorney fees, online legal services, ongoing costs such as expenses after the grantor’s death, and probate costs in the case of a will. Therefore, living trust costs can range from $1,000 to $8,000, depending on complexity and possible modification. In comparison, will costs can range from $200 to $1,000.
The differences between these two documents lead to the conclusion that a will is suitable for those with more simple estate and no concerns about probate, while a living trust is ideal for those with larger or more complex estate who want to avoid probate and ensure their assets are managed according to their wishes.
Let’s summarize these differences in the table.
Aspect | Living Trust | Will |
Probate | Bypasses probate | Requires probate |
Privacy | Private distribution | Public record |
Cost | Higher setup cost, ongoing maintenance | Lower setup cost, no maintenance needed |
Best For | Larger estates, incapacitation planning | Smaller estates, simple asset distribution |
Final Thoughts
When deciding between a living trust vs. a will, it is important to know that both documents will ensure your assets reach beneficiaries you have chosen. However, each has characteristics that will be decisive in choosing which suits your needs.
If you have a larger and more complex estate to manage, want privacy, and wish to avoid probate, a living trust is your best option. On the other hand, if you want a simpler, cost-effective choice that addresses asset distribution through probate, then a will should be your choice.
In any case, ensure your document complies with state laws and clearly reflects your wishes to ensure peace of mind for you and your loved ones.
Living Trust vs. Will FAQ
A will is simpler and cheaper to set up, but it goes through court process, while a trust avoids probate and provides better management if you are incapacitated.
You might avoid a trust if your estate is small, as the setup and maintenance costs may outweigh the benefits.
If you have few assets, a will may be sufficient. A living trust is generally more beneficial for larger estates.
Yes, both a revocable living trust and a will can be changed or revoked at any time while you are alive and mentally competent. On the other hand, an irrevocable trust cannot be easily altered.
Setting up a living trust is typically more expensive than creating a will due to the complexity of drafting the trust document and transferring assets into the trust.
