Both a will and a living trust allow you to set the terms for the distribution of your property after you pass away. The differences between the two, however, can be quite important. Before deciding which to use for your property, you should consider the following advantages and disadvantages.
Advantages of a Living Trust
- A living trust is a cost-saving device: in most states, it allows you to avoid the expense and delay of probate proceedings, which can take up to 3 years to complete and eat up 10% of the value of your estate.
- If you own property in another state, a living trust eliminates the need to probate that property in that state.
- A living trust can immediately transfer management of your property if you become incapacitated either physically or mentally. There is no need to go to the court to appoint a guardian or conservator.
- A living trust protects your privacy; it remains confidential and does not become a matter of public record.
A living trust enables you to name someone you trust to manage trust property for young beneficiaries.
- There is no need to hire a lawyer when the time comes to distribute your estate.
Advantages of a Will
- Setting up a will is much simpler and less expensive than setting up a living trust.
- Creditors face a final cut-off date for bringing claims against your estate.
- You may name a guardian for your minor children in a will.
- You do not need to transfer any property to another entity in order to create a will or make it valid.
Disadvantages of a Living Trust
- Setting up the trust requires quite a bit of initial paperwork and can be expensive.
- Setting up the trust also requires you to transfer ownership of all the property you wish to place in the trust. This may include revising title documents.
- You may run into some difficulty when you want to refinance property that is in your living trust.
- Creditors do not have a final cut-off date for bringing claims against your trust.
- You cannot designate a guardian for any minor children in a living trust (but this may be done easily in a will that supplements your trust).
Disadvantages of a Will
- Upon probate, a will becomes a matter of public record.
- While you may appoint whomever you wish to act as executor of your will, it is usually the probate lawyers who control the actual distribution of your property. This can be both expensive and unpleasant.
- Probate, which is necessary for the implementation of your will, can be both costly and slow.
- A will does not provide for transfer of management of your assets or property if you should become physically or mentally incapacitated - for that you need a health care directive.
Trusts Typically Include an Accompanying Will
If you choose to create a living trust, you should also create what is called a pour-over will. It provides for the distribution of any property that is not included in the trust. It will also allow you to name a guardian for any minor children.
To learn more about creating these important estate planning documents, see our do-it-yourself product chart.