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Wills have been around a long time, so you are probably more familiar with them. Wills are fairly simple and straightforward documents, inexpensive to draw up, and must be probated. A revocable living trust avoids probate for all the assets held in the trust. The individual creating the trust is called the “Settlor” or “Grantor.” Revocable living trusts are becoming increasingly popular due to their versatility in handing over the management of property and assets to someone else while the person is still alive.
Wills
A will is a document expressing your intention as to what should be done with your property once you die and instructs the probate court what to do after your creditors and bills are paid. Since almost everyone who dies has some kind of property, nearly everyone should have a will. This is particularly true if you want a friend or fiancé to inherit from you.
If you die without a will, the state will act on its default plan. Once your creditors get their share, your property will likely first go to your spouse and children, then your parents, siblings, and grandparents, and the grandparents’ children in that order. One thing to be considered in not having a will is the survival requirement, which only be overridden by a written document.
Wills are applicable only for assets that pass through probate. This does not include your assets that already have designated beneficiaries, such as life insurance policies, retirement accounts or annuities, and assets held jointly with another, such as bank account, vehicles, or real property held jointly with rights of survivorship.
Wills can also provide for legal guardians of minor children and who you want to serve as administrator of your estate, instructions for your funeral and burial, and establish any age or other restrictions to those receiving an inheritance.
Wills, unlike living trusts, are effective only upon death. They are not as complete or flexible as a living trust. Perhaps their greatest disadvantage, though, is their lack of privacy. Wills are public documents, requiring notice to be published in newspapers of general circulation, and the will must be available for public inspection. Not only are all those in the will notified, but the “public” is notified as well. Literally anyone can go to the courthouse and look at all the information on file, including the names and addresses of heirs and how much they will be receiving. This is not an optimal situation, but in some cases it is necessary, as when there are large claims or lawsuits that require a statutory means of handling the dispute.
Living Trusts
Revocable living trusts, by contrast, are private documents which do not need to be probated or filed with a court, unless there is a disagreement or dispute among beneficiaries or the trustee.
Living trusts cost more to draw up because of the costs associated with funding them. Rather than one document, there may be many, including forms, deeds and other documents. However, some cost is saved eventually through the avoidance of probate.
A revocable living trust does just what it says – it is revocable, so that you can change it if you change your mind. Funding, or adding assets to the trust, can occur throughout your lifetime. A “pourover” will is used to transfer any remaining assets that have not been transferred to the trust upon your death.
You will serve as the initial trustee of the revocable living trust and manage the property as you always have done. If you should lose ability to manage things, then the successor you have previously designated will step in to manage your financial affairs and the assets of the trust for you.
The living trust offers the advantage of lifetime management of an estate, more privacy, avoidance of probate costs, and a shorter time for settlement.
Not every situation, however, calls for a revocable living trust. These can be costly to create and a very small estate may not require one. Some estates may not need to even be probated, if they consist only of joint accounts, transfer-on-death property, and joint tenancy property to which there are already beneficiaries named.
There is no way to arbitrarily say that one method is better than the other. The plan chosen will depend on individual circumstances. You should consult with an attorney experienced in your state specializing in estate planning to decide which method best suits your needs.
Photo courtesy of Ken_Mayer via Flickr