Wills vs Revocable Living Trusts

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Most everyone has heard of wills and trusts. But do you know what the difference between them is? Let us take a minute and define the terms “will” and “trust”.
Will. A will is a written document that is signed and witnessed. A will only goes into effect when you die. Before a will can take effect it must be “proven” in a court probate process. Probate can take time, money, and is a public process. That means that neighbors and predators can have access to the court records of a probate proceeding. The upside of probate is that once it is closed, any creditor claims against your estate are completely cut off. If you own property in your own name and you don’t have a trust, probate is the only way for that property to be transferred to your beneficiaries.
A will:

  • provides for the division and gifting of your accounts and property at death, but not accounts and property directed to others through beneficiary designations (e.g. life insurance or retirement benefits)
  • sends accounts and property that do not have designations and that are owned solely by you, in your individual name, through the probate process
  • allows you to appoint permanent guardians for your minor child
  • names the person you wish to wind up your affairs (e.g. executor or personal representative)</li
  • permits you to cancel or change your decisions during your lifetime
  • does not always include protective trusts for your beneficiaries and tax planning because many wills are simple 2-3 page documents
  • tends to cost less than a trust on the outset but may cost more to settle during court proceedings after death

Trust. A trust (specifically, a revocable living trust) is a relationship where you (the trustmaker) name a trusted individual (trustee) to manage accounts and property for your benefit and the benefit of others (beneficiaries). When people talk about a “trust” they are usually referring to the document that puts this relationship in writing. A trust is effective during your lifetime, during any period of disability, and after death. Because the trust is effective during your lifetime and you can change it, it is referred to as a “living” document. If you use a trust as your primary estate planning tool, the accounts and property are owned by the trust, not you. There is often no need to go to court to probate the estate. This keeps your affairs private and saves your family time and money.

A trust:

  • provides for the division and gifting of your accounts and property
  • avoids involvement of the probate court if the trust is fully funded (meaning the ownership of the accounts and property has been changed from you as an individual to the your trust)
  • provides for a back-up trustee upon your death or if you are no longer able to handle your own affairs
  • allows for the continuous management of your accounts and property – even if you are still alive but unable to do so yourself
  • often includes protective trusts for your beneficiaries and tax planning
  • permits you to cancel or change your wishes during your lifetime
  • costs more than a simple will on the outset but may cost much less upon administration, while typically providing significantly more value

HOW TO DECIDE: As everyone’s situation is different, it is important to analyze every aspect of your situation – and what the future may hold – so that you can determine what is right for you and your loved ones and whether probate avoidance, incapacity planning, and trust protections have value to you and those you love. We have found that most people receive the greatest overall benefit from having a trust.

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