You have worked hard for your money and made every attempt to be a conscientious saver. So it's only natural that you want some control over what happens to your assets after you pass away. Even if you are a person of modest means, you have an estate. So, you should have an estate plan, a strategy to ensure your assets are distributed according to your wishes, and in a timely fashion.
The right strategy depends on your individual circumstances. For some, a living trust can be a useful and practical tool. For others, it might be a waste of time and money.
What is a will?
A will is a written document that indicates how your property will be distributed at the time of your death. It is revocable and subject to amendment at any time during your lifetime. It also allows you to appoint a guardian for your minor children.
What is a living trust?
A living trust provides lifetime and after-death property management. If you are serving as your own trustee, the trust instrument will provide for a successor upon your death or incapacity. Court intervention is not required.
Livings trusts also are used to manage property. If a person is disabled by accident or illness, the successor trustee can manage the trust property. As a result, the expense, publicity, and inconvenience of court-supervised distribution of your estate can be avoided.
If a living trust is properly written and funded you can:
- Avoid probate on your assets
- Plan for the possibility of your own incapacity
- Control what happens to your property after you are gone
- Use it for any size estate; and
- Prevent your financial affairs from becoming a matter of public record
While a trust sounds appealing, there are drawbacks.
A living trust is more expensive to set up than a typical will because it must be actively managed after it is created. Most importantly, however, a living trust is useless unless it is funded.
A living trust only can control those assets that have been placed into it. The funding process is necessary but can be tedious. If your assets have not been transferred or if you die without funding the trust, the trust will be of no benefit as your estate will still be subject to probate and there may be significant state estate tax issues.
Will vs. living trust considerations
There are many positive reasons to establish a trust but do not overlook the fact that it will involve more upfront effort and expense. To determine if you should make the extra effort and invest in the expense of a trust, answer these questions:
Is informal probate an available option? Most states have an expedited or simplified form of probate for estates under a certain dollar threshold (that dollar value varies by state). If your estate could pass under an expedited form of probate, or if you live in a state where probate is not a complex or burdensome process, a will could be appropriate.
Will you actively manage your estate plan? If not, a living trust may not be a suitable solution. Again, a trust will only be beneficial if assets are transferred into it.
So which is best for you? In many respects, a living trust and a will accomplish similar objectives. A trust, however, allows you to realize other objectives that a will cannot. But those advantages don't come without a price. Whether or not a living trust is better for you than a will depends on whether the additional advantages are worth the cost. When choosing, remember that one size does not fit all. What is right for one person may not be right for everyone. Your estate plan should be prepared in a way that best meets the needs of you and your family.