Estate Planning might seem daunting at first, but it is absolutely essential to get something in place in order to ensure that your property and loved ones are taken care of in the event of your incapacity or death. As important as it is protect your assets and loved ones, it is equally important to understand the basics of estate planning. Wills and Living Trusts are two of the most common tools when it comes to estate planning, and many people don’t fully understand the difference between the two. Here is what you should know about these common estate planning devices.
A Will is a document that outlines who will inherit your property at your death and appoints a legal representative to make sure that your wishes are carried out as stated. It goes into effect only after you have died, and covers any property that is in your individual name or jointly held with another as tenants in common. It does not cover property held in joint tenancy, tenants by the entirety, or in a trust. You are also able to name a guardian for minors, and creditors have to comply with a set date for bringing claims against your estate. Besides the relative ease in creating a Will, another advantage is that it is less expensive than setting up a trust. However, probate (which can be costly and slow) is typically necessary for the administration of your Will and subjects your Will to becoming part of a public record.
A Living Trust is a pool of assets, such as cash, property or investments, that are managed by its creator (or a third party trustee) for the benefit of the person who establishes the trust and/or other third parties. Unlike a Will, a Living Trust goes into effect immediately upon its creation enabling its creator to use it for disability planning as well as death-related planning. Another main advantage of a Living Trust is the ability to delay distribution of trust assets to children if you pass away while they are still minors, which cannot be effectuated with a Will. With a fully-funded Living Trust, your estate can avoid the probate process and there is no requirement that your Living Trust be filed with any court upon death. In sum, if a Living Trust is properly written and funded, its main advantages include the avoidance of probate, the ability to plan for your own incapacity, controlling what happens to your property while you are incapacitated and after you are gone, the ability to implement financial oversight of trust funds for the benefit of minor children, and the prevention of having your financial and family affairs become a matter of public record.
Both planning tools have their advantages and disadvantages, and it is not easy to determine which may be the best fit for you. Living Trusts are more flexible and offer more overall benefits than a Will, but those don’t come without a cost, and not all the options may be necessary for you and your family. You should work with a trusted attorney in order to determine which estate planning tools work best for you.