If you haven’t taken any steps to set up your financial legacy before you die, you’re considered intestate, which means that your state’s statutes will specify who inherits your property. If, however, you want to decide for yourself who inherits your assets, you should execute a will or living trust.
Although neither a will nor a living trust gives you any estate tax breaks, there are other considerations that might make one the better option for you. Reference the chart to quickly see which each offers, then make a decision based on your needs.
|Living Trust vs. Will: Which Is Right for You?|
|Can leave property in trust or outright||Yes||Yes|
|Easy to draft||Yes||No|
|Easy to administer||Yes||Yes|
What Is a Will?
A will is a document that specifies how your property should be distributed upon your death. You can leave it to your beneficiaries outright or in a testamentary trust in your will.
Any property that passes under your will, however, must go through probate, which is a court-supervised process of distributing your property after your death. In addition, a will is a legal document you must use to name a guardian for your minor child — you can’t do that with a trust. Each state has requirements for executing a will, one of which usually involves having witnesses sign it.
What Is a Living Trust?
A living trust is a document that allows you to pass your assets to your beneficiaries without the probate process. The trust governs any assets that you retitle in the name of your trust, so after you execute your trust you should retitle all of your assets in its name.
Upon your death, your successor trustee distributes your assets without court oversight because you are avoiding probate. Living trusts generally must be notarized by a notary public, but the requirements vary by state.
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Advantages of Wills
Having trouble deciding between a will and a trust? Take a look at the pros of a will:
- Wills are simpler and less expensive to set up than trusts because you don’t have to retitle any of your assets. That means you don’t have to change the way your bank or brokerage accounts are titled or prepare new deeds for your house in order for your will to cover those assets.
- If you expect a contentious distribution — for example, your beneficiaries might not be on friendly terms — court supervision might be a good thing. In addition, you can use beneficiary designations for certain types of accounts, including bank and brokerage accounts and retirement plans — so they will not be subject to the probate process.
Advantages of Living Trusts
Like wills, trusts have advantages. Review them and see if they help you decide:
- Although trusts are more costly and time-consuming to set up, they are generally faster and less expensive to administer than wills. Remember that you will need to retitle your assets for a trust — this means that if you have properties in multiple states and you retitle them, you can avoid having to open probate estates in different states.
- The terms of a trust remain private after your death. Wills, on the other hand, become public record when they are probated, which means that anyone can find out who is inheriting your property.
- If you are alive but unable to act because you’re incapacitated, your successor trustee can manage all of the assets in the trust for you until you recover, whereas a will takes effect only after your death.
Which Document Is Best for You?
If your estate has a straightforward distribution — for instance, if everything is passing outright to your spouse or divided equally among your adult children and all of your assets are in the same state — a will could be sufficient. If you have a more complex plan of distribution, don’t want your financial information made public or have property in multiple states, a trust might serve you better. Even if you opt for a living trust, you should always prepare a “pour-over” will, which ensures that any assets that aren’t titled in the name of your trust pass to your trust upon your death.