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How to Choose Between a Living Trust and a Will
-
Dec 2010
Wills and living trusts can both be effective estate planning documents that enable you to direct the transfer of your assets after your death. But how do you know which you need? Read on for more information about how to choose between a will and a living trust.
What is a Will?
A will is a legal document that directs the disposition of your assets after your death. Having a valid will makes the probate process, the distribution of your assets, go more smoothly than if you didn’t have a will. Also, in a will, you can name a guardian for your children.
What is a Living Trust?
A living trust is a legal document that becomes valid when you execute the documents and your property is transferred into it. You, as the grantor and trustee, manage the assets while you are alive and then they are passed directly to a trustee of your choice upon your death without involving probate.
Although you can’t name a guardian for your children in a living trust, you can choose someone to manage assets set aside for a specific beneficiary until they are older. As discussed below, you can execute a will in conjunction with your living trust, under which you can name a guardian of your children.
What are the Differences Between a Will and a Living Trust?
The main difference between the two documents is that a will takes effect only after your death while a living trust becomes valid as soon as it is duly executed and assets are added—that is, during your lifetime.
Another significant difference between the two is that a living trust can make provisions for your estate in case you are incapacitated. A will can’t do this, although a power of attorney can. Living trusts, though, may be more specific and make managing the estate easier on the trustee than a power of attorney.
Moreover, regarding probate, a living trust can help to avoid time and costs associated with it, particularly since with a living trust, there is no freezing of assets so long as the trust has been funded. Another advantage to a living trust is that it remains private in many states, while a will becomes part of the public record during the probate process.
What Factors Should I Consider When Choosing Between a Living Trust and a Will?
Some of the most important factors to consider when deciding on whether you should establish a living trust include, but are not limited to, the following:
- Your location. State law regarding estate taxes and probate vary greatly, so what may be advantageous in one state may not be in another.
- Your assets. Generally, states establish an asset value below which even wills can bypass probate, but that doesn’t mean lower valued estates couldn’t benefit from the other advantages of a living trust. Also, if you have assets that could be harmed by prolonged probate, such as a business for example, a living trust might be the better choice.
- Taxes. A living trust may have estate tax advantages both on the federal and state levels, but it depends not only on your state and the value of your estate, but also on the federal estate tax, the status of which is currently in limbo.
- Your beneficiaries. Because a living trust can hold your assets after your death, it offers a way to provide for young, special needs, or other particular beneficiaries you would rather not immediately receive their share of your estate. You may also provide for the care of pets in this way.
- Likelihood of your estate being contested. If you think there is a good chance that your estate distribution will be contested, a living trust may be more likely to withstand the challenge.
- Your trust in a potential trustee. With a living trust, you must be able to trust your named trustee to act according to your wishes without court intervention or monitoring.
- Your current financial situation. Setting up a living trust may be more expensive upfront than writing a will, but this must also be weighed against all the above factors.
Final Thoughts on a Living Trust
With a living trust, an asset doesn’t become part of it without specifically being included, so you must keep up with adding your assets to the trust to ensure that a valued asset doesn’t end up going through probate, especially if it is not included in your will either.
For this reason, it is advisable to also have a pour-over will, not only because you are able to name a guardian for any children, but also because you can catch any assets that didn’t make it into the trust. Like all wills, a pour-over will is handled in probate court, if necessary.
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Comments
Submitted by on Nov 30, 2010 - 1:05PM
If I cannot trust any family member to carry out my husband and my wishes, who can I contact?
Submitted by on Dec 9, 2010 - 9:46AM
You can appoint a third party trustee either at a local bank or with a financial advisor. You'll want to make sure that the instructions you give them are very specific. If you'd like me to expand on that answer just email and I can walk you through it.
Submitted by on Dec 1, 2010 - 8:04AM
At present my daughter is the trustee; I now wish her removed from the will so I am not sure that she won't contest it, as I havr replaced her (or I will be doung) with another person.
Submitted by on Dec 1, 2010 - 4:18PM
You omitted mention of the cost of having an attorney draw up a living trust versus a simple will, and the cost of having a trust changed (either by property changes or beneficiaries) compared with having a codicil drawn up, or even a new will.
Submitted by on Oct 20, 2011 - 12:15PM
I want to know the Cost difference in a will and ling trust.
thank you.
Submitted by on Dec 1, 2010 - 4:25PM
When a mortgaged property becomes living trust, is the interest deduction affected at tax time?
Submitted by on Dec 9, 2010 - 9:50AM
The trust will have it's own set of taxes and depending on how you set up the trust, any deductions can help offset the gains on other investments within the trust.
Submitted by on Dec 4, 2010 - 4:13PM
Would a Living Trust protect my estate when I have children by
other marriages? Would I have to stipulate in a living
trust that they do not receive any rewards?
Submitted by on Jan 31, 2012 - 8:19PM
I have been married three times I have three children that's not by my present wife, the wife I have now have two children from her marriage before me, she sold her house after we were married and spent the money or banked it and moved in my house I sold my house & bought another house in another State and had her sign forms stating that the house was for me & my children only Hurricane Katrina came along & destrosty the house so that it was unlivable I was paid the flood insurance so I paid the off & had enought money too buy the house we live in now the mortgage company put a lian on the property to let us me & the wife I have now buy the house we are living in now i had to sell the property & the SBA are taking the money too pay off the house we are living in now. The house we are living in now cost $18200 & $14600 came from the house I bought with she was not in title too at all now she want too claim one half of all the property without doing anything too earn it or too help keep it up or but any househole goods how shall I go about this?
Submitted by on Feb 22, 2012 - 7:19AM
Thanks for contacting LegalZoom. LegalZoom makes creating legal documents easy and affordable, but since we're not a law firm, we can't give specific legal advice regarding this situation. However, you can get free legal advice on the LegalZoom Facebook page every Friday and Tuesday. Check out Free Joe: http://zoo.mn/FreeJoe.
Submitted by on Dec 6, 2010 - 6:20AM
My mom had a $100,000 mobile home made and placed in a (Senior) mobile park where she pays a monthly rental. Other than that no other property, should or could this be placed in a Living Trust?
If the rent goes unpaid for any duration the mobile park will seize the home.
Submitted by on Dec 20, 2010 - 1:35PM
In California,what is the value of ones estate, before it
must go to probate?
Submitted by on Jan 7, 2011 - 11:27AM
Hi Earl, this is a great question. LegalZoom makes creating legal documents easy and affordable, but we can't give specific legal advice or information regarding probate. Since each state is a bit different, you may wish to contact your local probate court directly. Or, if you want help finding an attorney, try our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Jan 7, 2011 - 11:35AM
Hello, this is a really great question, however because we are not a law firm we wouldn't be able to provide advice, or speak specifically to hypothetical situations. However, we can certainly help you find a lawyer to answer your question! Check out our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Jan 10, 2011 - 8:12AM
If the trust is in my adult child's name, the assets are his even though I am managing the trust while alive, correct? So what happens if I am incapacitated and need a nursing home? Does that expense come from the trust, or am I considered without assets and my expenses thus paid for by Medicaid?
Submitted by on Jan 28, 2011 - 4:39PM
Hi Joan, thanks for thinking of LegalZoom. These are all great concerns and questions, however because we are not a law firm we are unable to provide any legal advice. We can help you find a lawyer to answer your questions, though. Check out our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Feb 8, 2011 - 9:10AM
Question 1. So if I understand correctly, the trust will need a name to be something generic like: Miller Living Trust? Correct?
Question 2. To have an item covered by the trust, for example a vehicle, would it need to be titled to: Miller Living Trust, and then properties also titled to: Miller Living Trust?
Question 3. If I have Legal Zoom help me with setting up a living trust, will I be protected in Oregan, Missouri, and Nebraska as I own property in these three states?
Submitted by on Mar 1, 2011 - 1:02PM
My will and intension is to leacve my home(deed in bill's name only) to my 3 children with the stipulation that Judy(wife) be permitted to live in the home as long as she desires. The mortgage is paid automaticaly from my IRA which is willed to the 3 children.
A situation has occured that has disrupted communication between my daughters(not speaking to each other). I doubt that they will be able to coordinate paying the mortgage and keeping Judy in the home until she is ready to move on. Judy has children by a previous marriage that I do not wish to involve with my home and Judy 's assets will not go to me or my children.
What legal instrument will accomplish this?
Submitted by on Mar 10, 2011 - 9:44PM
Dear Ms. Fabio
Last December you answered the following question posted in the "COMMENTS" section of "How to Choose Between a Living Trust and a Will"
"If I cannot trust any family member to carry out my hin usband and my wishes, who can I contact?" submitted by Matt Augspurger"(Dec 9, 2010 - 8:46AM). You suggested that "you can appoint a third party trustee either at a local bank or with a financial advisor". This is just what my husband and I want to set up.
You also stated that you "want to make sure that the instructions you give them are very specific".... and..."If you'd like me to expand on that answer just email and I can walk you through it."
We like to take you up on the offer. Please walk us through it -- we're meeting with our attorney next week and we want to make sure that our instructions to the bank are all they should be.
Thanks for your help.
Deborah D'Amico, Naples FL
Submitted by on Mar 23, 2011 - 1:46PM
To Anonymous, there seems to be some confusion as I didn't respond to Marva Hone's initial comment above; the commenter named Matt Augspurger responded, and he is also the one who offered help in walking through the process. I don't see any contact information for him here for you to get in touch with him directly, but hopefully he will come back and see your request for assistance; I'm sorry, but I don't offer legal advice or services. Best of luck.
Submitted by on Mar 19, 2011 - 8:35AM
My mother-in-law recently passed away in California. Right before her death, one of her son's names was added to the house deed. It was my mother-in-law's wish for her property to be split four ways to each child. Now the brother, who has the house in his name, has threatened my husband, the oldest son from even visiting the house. Can this be contested? Thank you!
Submitted by on Apr 14, 2011 - 10:41AM
Hi Michael, we are sorry to hear of your loss and we extend our deepest condolences. We wish we could help, but because we are not a law firm we cannot give any legal advice regarding this matter. If you are interested, we may be able to find an attorney to assist you. Please feel free to refer to http://attorneyconnect.legalzoom.com
Submitted by on Jun 6, 2011 - 2:50PM
What kind of trust do we need to leave my husband investment income to me, but not the investments themselves..that will go to his kids after I pass?
Submitted by on Jun 23, 2011 - 8:07AM
Hi thanks for your question. While we do offer Living Trusts designed to avoid court probate, we don’t currently offer trusts to hold investment income. However, you can get free legal advice on the LegalZoom Facebook page every Friday. Check out Free Joe Friday: http://zoo.mn/FreeJoe.
Submitted by on Jun 6, 2011 - 8:46PM
I am a single 62 yr. woman with no children or heirs. I own real estate. To date I don't have a will or trust and have been putting it off for years. Under the circumstances, is it better to have a will or trust?
Submitted by on Jun 23, 2011 - 9:01AM
Hi thanks so much for thinking of LegalZoom. This is a great question, but do keep in mind that LegalZoom is not a law firm and cannot advise you on which document is better for your situation. We can make it easy for you to prepare these types of documents however. Give us a call (1-800-773-0888, 6am-7pm PST, M-F) or send us an email (psinfo@legalzoom.com) if you have questions. For free legal advice on the LegalZoom Facebook page every Friday, check out Free Joe Friday: http://zoo.mn/FreeJoe.
Submitted by on Jun 28, 2011 - 6:30PM
Just browsing this site for information about a will and saw your question. I'd happily volunteer to be an heir! Peace to you and whomever is your beneficiary.
Submitted by on Jun 7, 2011 - 3:01PM
I am currently looking at changing my will and possibly creating a trust. From what I have read a trust may be the correct vehicle to have in my case.
I have 2 grown daughters 25 and 23 and no spouse.
Besides my savings and 401K and stocks I am 50% partners in 7 rental properties in New York State. I reside in New Jersey and I am under the impression that since the real estate is in another state a Living Trust would be best to help that portion evade probate? Am I correct on this assumption?
I have looked into using Legal Zoom for this but cannot find the information that would make me comfortable enough that it is done correctly.
Is this something to look into?
Thank you
Submitted by on Jun 23, 2011 - 8:17AM
Hi, thanks for your interest in LegalZoom. These are all great questions. While we can't advise you on what is best for your specific situation, typically Living Trusts are used to own assets and properties to avoid the court probate process. Here at LegalZoom we do offer state specific documents just for that purpose. For more information on our Trusts, please visit our education center http://www.legalzoom.com/living-trusts-guide/living-trusts.html. Or you can call uas at 1-800-962-7490, 6am to 7pm PST, M-F to speak to a representative regarding Living Trusts.
Submitted by on Jun 7, 2011 - 5:18PM
My mother is 84 and has had a couple strokes this year which leaves her unable to speak. However, she can understand what is being said and indeed has all her faculties. At the present time my brother and his girlfriend and her child live in the home with my mother.
They lived there before the strokes occurred but now still live there and think they live there to take care of my mother. They really dont take care of her but currently get income from in home health care to do it even though they are not. My mother has a $ 30,000.00 mortgage on her home which she makes a monthly payment on. In the case of her death and she doesnt have a will, what will happen with her home. I think my brother would stay there without making the payment until bank forecloses what can be done.
Submitted by on Jun 23, 2011 - 8:18AM
We'd love to help, but our specialty is legal documents, not legal advice. However, you can get free legal advice on the LegalZoom Facebook page every Friday. Check out Free Joe Friday: http://zoo.mn/FreeJoe.
Submitted by on Jun 7, 2011 - 7:43PM
I have $5000.00 per month rental income, pay the IRS $2000.00 quarterly and come tax time , I claim this as income and usually get a $1500 to $2000 refund. If I put this property in a Living Trust with my wife and myself as trustees and pay myself a monthly salary, how will this effect my taxes? I was told the Trust would pay taxes on this income and then I would pay taxes on my income. This doesn't sound right. Why would I want to do this? Right now we both have wills giving each other every thing
Submitted by on Jul 1, 2011 - 11:56AM
Thanks so much for your question, Cecil. LegalZoom makes creating legal documents easy and affordable, but we unfortunately can't give specific legal advice regarding tax implications. However, you can get free legal advice on the LegalZoom Facebook page every Friday. Check out Free Joe Friday: http://zoo.mn/FreeJoe.
Submitted by on Aug 4, 2012 - 5:52AM
Currently if you hold this real estate as an investment, your income and expenses are calculated and filed on a Schedule E. This is considered "unearned" income (income from a passive activity). Taxes are calculated on the income, but the customary taxes paid by self employed or working people who have "earned" income (FICA taxes) are not required to be paid. When real estate is placed in a trust, the trust itself files a tax return. After taxes are paid, I believe you will have less net income by placing this real estate in a trust. If it is only your wife and yourself, you can each leave your assets to each other without all the complications and extra tax expenses of a trust.
Submitted by on Jun 30, 2011 - 4:38AM
My adult daughter will get a huge settlement soon. She also has bipolarism, schizophrenia and manic depression. She's finally being treated but lacks common sense and gets overwhelmed dealing with almost anything. I don't want her money but I want to ensure that when she has her crisis she won't throw, give away money or assets as she becomes very vulnerable and susceptible to being fooled. Is there a way to create a living trust that limits the amount of money she can use yearly or monthly like a salary without her burning away the serious money, so she's is provided for rest of her life?
Submitted by on Jul 19, 2011 - 11:04AM
Thanks for your inquiry. While LegalZoom can help create Living Trusts, they are designed to be Estate Planning tools, and are not for asset protection. You might try asking about your situation on the LegalZoom Facebook page every Friday. Check out Free Joe Friday: http://zoo.mn/FreeJoe.
Submitted by on Sep 12, 2011 - 10:29AM
I am writing a living trust and will for my minor children. I have the following questions:
I set up a living trust and back up will naming my 3 minor children as beneficiaries.
What if one day, me, my husband and all children die at the same time in an accident?
Both my parents and in-laws do not live in the US. If none of me, my husband and children survives, I want all estate pass to our families in Asia. What is the best way to set this up in my will and living trust? My families are not familiar with the US legal system, so I want to make it easy for them if possible.
Submitted by on Jan 19, 2012 - 10:38AM
Will this protect Property for the direct family?
I have brother that is in the midst of a divorce,
my mother does not any part of her property going to his
spouse. She wishes to hold in a trust, that if she dies
before the divorce is decreed that it it held in the
trust and distributed to brother after the divorce.
She has stipulated that this is to going to her direct
children only, he concern is with a will that the siblings
would receive it into there estates an than causes my brother estate to split it with the spouse if they are yet not divorced before her death.
Is this one of the protections you can get with a Living Trust?
Submitted by on Jan 20, 2012 - 3:28PM
Hi Tom- thanks for thinking of LegalZoom! LegalZoom makes creating legal documents easy and affordable, but we unfortunately cannot give specific legal advice regarding your specific situation. You can get free legal advice on the LegalZoom Facebook page every Tuesday and Friday.
Submitted by on Feb 6, 2012 - 3:09PM
We live in Florida. Trying to decide whether to redo my mom's will or get a Living Trust or both. My father recently passed. It is in mom's will for my sister and I to receive all assets after her death. It was my father's wishes for this to be the case as his will also stated the same.
Through another personal experience (wife's mother) remarried and changed the will. Now, her mother will not be around much longer and the new husband will receive everything and the 5 kids will get nothing. I want to prevent the possibility from happening to me by having an iron clad will ot Trust that cannot be changed. There is a considerable amount of assets involved in our case.
What can be done to assure that making a new will or Trust cannot be changed in the future without all 3 parties agreeing? Can I have specific wording such as "No Contestation Clause" or "New will supercedes any previous will and Trust"
I am leaning towards a well written will. Please let me know what you think of wording a will properly and it being iron clad and non changable.
Thank You, Andy B
Submitted by on Feb 8, 2012 - 2:04PM
Thanks for your inquiry. LegalZoom makes creating legal documents easy and affordable, but we can't give specific legal advice about how to set up your mother's estate planning documents. However, we may be able to help you find an attorney who can assist you through our Legal Advantage Plus plan, try: https://www.legalzoom.com/attorneys-lawyers/legal-plans/personal.html
Submitted by on Jul 26, 2012 - 8:36AM
Do I necessaryly have to include my IRA in my Last Will if the same people are my beneficiaries in IRA account?
Submitted by on Aug 2, 2012 - 10:29AM
Hi Dennis - Thank you for contacting LegalZoom. Typically speaking, your IRA handles its own distribution and is not covered by a Last Will. However, you may wish to speak to your account holder directly about how these funds are handled after your passing. Feel free to contact our Estate Planning Team by calling (1-800-773-0888, 6am-7pm PST, M-F) or send us an email (psinfo@legalzoom.com) if we can be of futher assistance.
Please note that we can’t answer legal questions in the article comments. If you have a specific legal question, click here to connect with an attorney.