If you’ve started planning for your estate, you have likely come across the terms ‘will’ and ‘living trust.’ While the two sound similar, and both allow you to name beneficiaries of your property, a will and living trust serve different purposes.
However, if you haven’t begun the estate planning process, you’re not alone. A survey found that 40 percent of adults aged 53-71 do not have a will or living trust in place. While no one wants to think about end-of-life planning, having a will or living trust upon your death can save your family emotional stress.
Here is what to keep in mind when considering estate planning documents like a will or living trust.
What is a Living Trust?
A living trust, sometimes referred to as a revocable trust, is a legal document that allows for the easy transfer of your assets upon your death. You appoint a trustee who holds legal possession of your assets and property that flow into a trust. This process allows your beneficiaries to bypass the probate process, which can be time consuming and expensive. Living trusts can take effect when you die or become incapacitated.
What is a Will?
A will is a document that allows you to make a legally enforceable declaration of how you want your assets and property distributed upon your death. A will can also include provisions for any pets, if you have them.
Differences Between a Living Trust and a Will
Probate and Public Record: Both a living trust and will specify what will be done with your assets when you die. However, a living trust forgoes the probate process. Wills must go through a probate process and, as such, are public record. A trust, though, is not a public record and can only become one if a beneficiary files a lawsuit challenging its validity.
Mental Incapacitation: A will only becomes effective when you die. A living trust, though, can account for your wishes if you become unable to make decisions. The trust document should specify how your mental incapacitation will be determined — by a team of physicians who all must concur or by your own physician. But be aware that not all trusts account for mental disability. If you want to account for the possibility of mental decline, be sure to include a comprehensive disability plan in your trust.
Provisions for Children: If you would like to leave property or assets to a person under 18, a living trust allows you to assign a trustee to those assets, which will be managed by the trustee until the beneficiary reaches an age determined by you. If you’re using a will and are going to leave property to a minor, you must also name an adult to manage that property until the child reaches a suitable age. If you are using a will and don’t name an adult to manage the property, a court will name someone to manage it.
A living trust and a will accomplish similar things, but there are important differences. Remember to always consult a professional advisor—tax, investment, legal—before making any decisions regarding your estate.