Even though both documents a living trust and a will can be used to pass on assets after your death, there are some key differences between a living trust and a will. Every individual has different needs and circumstances, so it's important to understand how each type of document works before you decide which is right for you. Each document offers different benefits and drawbacks, so it's important to understand the pros and cons of each before you make a decision.
In this article, we'll compare and contrast a living trust and a will, so you can make an informed decision about which is right for you. We will dig deep into the key differences between these two types of documents, and explain how each works.
What is a living trust?
A living trust is a legal document that allows you to transfer ownership of your assets to another person or entity while you are still alive. You can think of it as a way to "pre-plan" for your death, by ensuring that your assets are distributed according to your wishes.
A living trust is created by a legal document called a trust agreement. This document outlines the terms of the trust, including how the assets will be managed and who will have control over them. The trust agreement is then registered with the state in which you live.
Living trusts are revocable, which means that you can change the terms of the trust at any time. You can also dissolve the trust entirely if you so choose. This flexibility makes living trusts a popular choice for people who want to have some control over their assets after they die.
What is a will?
A will is a legal document that outlines how you would like your assets to be distributed after your death. Unlike a living trust, a will does not take effect until after you die.
A will is typically created by a lawyer and then signed by you and two witnesses. The witnesses must be people who are not related to you and who would not stand to inherit anything from your estate. Once you die, your will must be submitted to the probate court in your state. The probate court is responsible for ensuring that your assets are distributed according to your wishes.
Wills are not revocable, which means that you cannot change the terms of the will after it has been created. If you want to make any changes to your will, you must create a new will and have it witnessed and signed again.
Key Differences Between Living Trusts and Wills
Now that we have a basic understanding of how living trusts and wills work, let's take a closer look at the key differences between these two types of documents.
1. Flexibility
One of the key differences between a living trust and a will is flexibility. As we mentioned before, a living trust can be revoked or changed at any time. This means that you can make changes to the trust agreement as your needs and circumstances change.
A will, on the other hand, cannot be changed once it has been created. If you want to make any changes to your will, you must create a new will and have it witnessed and signed again. Setting up a will can be a time-consuming and expensive process.
2. Purpose
Another key difference between a living trust and a will is the purpose of each document. A will is typically used to outline how you would like your assets to be distributed after you die. It can also be used to appoint a guardian for your minor children.
A living trust, on the other hand, can be used for both estate planning and asset protection. In addition to outlining how you would like your assets to be distributed after you die, a living trust can also be used to protect your assets from creditors and lawsuits.
3. Effectiveness
When it comes to a will, it only gets put into effect after you die. This means that your loved ones will have to go through the probate process before they can receive any of your assets. The probate process can be time-consuming and expensive, and it is often a source of stress for grieving family members.
A living trust, on the other hand, can take effect as soon as it is created. This means that your assets can be transferred to your beneficiaries immediately, without having to go through the probate process.
4. Cost
The cost of creating a living trust is typically higher than the cost of creating a will. This is because a living trust requires the services of a lawyer or other professional to help you set up the trust and transfer your assets into it.
A will can be created without the help of a lawyer or other professional. However, it is always recommended that you have a lawyer review your will to make sure that it is legally binding.
5. Process
A will has to go through a lot of different steps before it can be put into effect. First, you have to create the will and have it witnessed and signed. Then, you have to submit the will to the probate court. The probate court will then review the will and make sure that it is valid. Once the will is validated, the probate court will oversee the distribution of your assets according to the terms of the will.
A living trust, on the other hand, can take effect as soon as it is created. You simply have to transfer your assets into the trust. There is no need to go through the probate court process.
Which one should you choose?
It depends. It depends on many factors, such as the size and complexity of your estate, your needs and goals, and your personal preferences. You should consult with a lawyer or other professional to help you decide which option is best for you. After all, this is a very important decision that could have a significant impact on your family's future. So make sure that you choose the option that is best for you and your family.
Conclusion
As you can see, there are several key differences between a living trust and a will. These documents serve different purposes and have different advantages and disadvantages. It's important to understand these differences before you decide which one is right for you. If you have any questions, be sure to consult with a lawyer or other professional to get expert advice. Also, talk to your family and loved ones to get their input on this important decision.