Should I have a will or a living trust?

Everyone should have legal documents that clearly outline how their estate should be handled according to their wishes. However, there is common confusion around these documents. 

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Wills vs. living wills vs. living trusts: What’s the difference?

When it comes to protecting your legacy, a variety of legal documents can be used to ensure that your wishes are followed. While there is some overlap between documents, there are important differences you should understand before you decide how to handle your estate. So, what’s the difference between a living trust, a will, and a living will? Read on to find out.

What is a will?

This is the most common and easy-to-understand document among the three. A will helps lay out what you want to happen when you pass. You can dictate the distribution of your property and assets, decide who should raise your children, if any, and more. A will won’t go into effect until you die. Wills usually must be signed by a witness and filed with your state probate court.

What is a living will?

A “living will” is sometimes confused with a traditional will, but it is quite different. The purpose of a living will is to detail how you should be treated medically if you’re unable to weigh in. You can give a trusted friend or relative a medical power of attorney and/or outline an advanced health care directive, which defines the medical treatments you want (or do not want) should you not be able to go over your options yourself and give consent. Often, this is important with terminal illnesses, but it applies to other situations as well.

What are living trusts?

There is no difference between a living trust and a trust. The words are interchangeable. A trust goes into effect as soon as it’s signed, which can be while you are living, hence the common moniker. The purpose of a living trust is to manage how your assets should be distributed, both while you are alive and after your death. With a trust, the “owner” is called a grantor or trustor, and the owner sets the terms of how the trustee will manage the funds and assets. The trustee has a fiduciary responsibility to handle the trust in the best interest of the beneficiaries.

What are some of the main differences between a will and a living trust?

While there can be some overlap, wills and trusts operate quite differently. Wills are generally cheaper and easier to maintain, and they are perfectly adequate for many people. Those who would like more control over their estates may choose a living trust.

Types of living trusts

There are many different types of trusts, but for most, here are the terms you need to know:

Revocable trust: Allows you to change the terms of the living trust at any time. The grantor can be the trustee, and the grantor continues to own all of the assets for tax purposes.

Irrevocable trust: You fully give up ownership rights to the assets you put in this type of living trust. The grantor cannot be the trustee, and the income from assets within the trust does not count toward taxable income.

Charitable trusts: Special tax codes apply to trusts that are primarily set up to benefit charities.

Can you have both a will and a living trust?

Since they do different things, you are allowed to have both, but it’s important to consult a professional estate planning attorney to understand how to best protect your assets. Ultimately, the goal is to make sure your assets go where you want, and having multiple documents might complicate that.

Do I need a will or living trust?

Everyone benefits from having proper legal documents regarding the disbursement of their estate. Even if you don’t have heirs, it’s important to put down in writing what you want to happen with your assets when you’re gone. Most people think trusts are for the wealthy only, but that isn’t the case. A trust can give you more control over how your assets are distributed among your beneficiaries. Using a living trust could help your family save time and money, while protecting your privacy.

What happens if I don’t have a will?

If you don’t have a will or a living trust to dictate how your money and assets should be split, it will fall to your state laws for inheritance. A probate court may need to become involved, and there can be lengthy delays and disagreements. It’s better to have a plan in place, even if you don’t think you have much to pass on.

Is one better than the other?

That depends on your desires, assets, and family. Both wills and trusts can be tailor-made to your specific circumstances. There is no “catch all” solution. Usually, wills work just fine if your finances are uncomplicated and you’re not worried about privacy. For a tailored approach to your estate planning, you should consult an estate planning attorney and begin a conversation with an agent.

Do I need a lawyer to set up a will or a living trust?

You can set both up without a lawyer, but it’s often advisable to use a lawyer when setting up a trust, especially if your finances are complicated.

Start planning your estate with a will or a living trust

Discussing what happens after you pass is never easy, but it is necessary. Whether you’ve just added to your family, purchased a new home, or experienced another life-changing event, now is the time to make sure your wishes are clearly outlined. We can help.

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