- What will happen to my family’s wealth after I pass?
- Who will inherit the family assets once I am gone?
- How will my last and final wishes be carried when I am no longer here?
- What is the best method for securing my assets and ensuring that my whishes’ are respected regarding them?
If you are concerned with such questions, with questions then our firm can help you in deciding whether a living trust or a will is the right choice for you.
What is a Living Trust?
- Also known as a revocable living trust or inter vivos trust, it is a legal document and arrangement created during an individual’s lifetime to manage and distribute their assets.
- The person who establishes the trust is known as the “settlor,” “grantor,” or “trustor.”
- A beneficiary of the trust is the individual or group of individuals for whom a trust is created.
- The trust designates a trustee (often the settlor during their lifetime) to manage the trust assets and specifies how the assets should be distributed to beneficiaries upon the settlor’s death.
- Unlike a will, a living trust allows for the seamless transfer of assets without going through probate, providing privacy and potentially saving time and costs.
- The term “living” indicates that the trust is created while the settlor is alive and can be modified or revoked by the settlor during their lifetime.
- Living trusts are commonly used for estate planning, allowing for the smooth transition of assets and avoiding the delays associated with probate.
What is a will?
- A will is a legal document that specifies the distribution of a person’s assets after their death.
- It is created by the testator (the person making the will) to outline their wishes regarding property, possessions, and finances.
- A will is also subject to probate, a court-supervised process to validate the will and oversee the distribution of assets.
- It must conform to certain formalities, including being in writing, signed by the testator, and witnessed by at least two individuals.
- A will is publicly recorded during probate and becomes accessible to the general public.
- A will may or may not include the appointment of an executor to carry out the terms of the will.
- It allows the testator to name guardians if there are minor children that must be cared for.
- It provides the opportunity to establish testamentary trusts for specific conditions or situations.
- However, a will does not inherently address incapacity during the testator’s lifetime.
- Finally, a will can be amended or revoked by the testator, as long as they have the mental capacity to do so.
Below is a chart comparing the different types of trusts
| Aspect | Revocable Trust | Irrevocable Trust |
| Definition | Can be altered, amended, or revoked by grantor | Cannot be altered, amended, or revoked without beneficiary consent |
| Flexibility | Offers flexibility for changes and amendments | Limited flexibility; terms generally fixed |
| Control | Grantor retains control over trust assets | Grantor relinquishes control over trust assets |
| Probate Avoidance | Assets may bypass probate, facilitating distribution | Assets typically bypass probate, ensuring efficiency |
| Estate Taxes | Considered part of grantor’s estate for tax purposes | Potential for estate tax benefits as assets are separate |
| Asset Protection | Limited asset protection benefits | Enhanced protection against creditors due to loss of control |
| Medicaid Planning | Limited role in Medicaid planning | May be used for Medicaid eligibility planning |
There are some final considerations when trying to decide whether you choose a revocable or irrevocable trust:
- First, your flexibility needs: revocable trusts are for those who require or desire more control and flexibility.
- Second, how much asset protection do you need? Irrevocable trusts are for those who need enhanced level of asset protection.
- Third, what are your tax needs? Irrevocable trusts may yield potential estate tax benefits.
- Lastly, Irrevocable trusts may help in Medicaid eligibility.
Here is an easy-to-read chart comparing living trusts to wills.
| Aspect | Living Trust | Will |
| Definition | Legal arrangement for asset management during and after the grantor’s lifetime. | Legal document specifying the distribution of assets upon the testator’s death. |
| Probate Involvement | Generally avoids probate, ensuring faster and private asset distribution. | Subject to probate, a court-supervised process for validating and executing the will. |
| Flexibility | Revocable, allowing changes and adjustments during the grantor’s lifetime. | Limited flexibility after creation; changes may be challenging. |
| Privacy | Maintains privacy, as trust details remain private and not publicly disclosed. | Becomes a public record during probate, accessible to the general public. |
| Incapacity Planning | Addresses incapacity with a successor trustee appointed to manage assets. | Does not inherently address incapacity; separate documents like a Power of Attorney may be needed. |
| Asset Distribution | Efficient and faster distribution after the grantor’s death. | May involve delays and court-supervised distribution of assets. | Can cause delays in asset distribution as the court oversees the process. |
| Contingencies | Can include conditions or trusts for specific situations, providing flexibility. | May involve testamentary trusts for specific conditions or situations. |
| Control | Grantor retains control over assets during their lifetime. | Effective only after death and court validation of the will. |
What exactly is probate and how does it affect an estate?
Probate is a legal process which is used to validate a will, settle the deceased’s estate, and distribute assets. Because the process is public, which means assets and wealth will become publicly disclosed, and accessible to anyone. Furthermore, probates can be time-consuming and can cause several delays in distributing assets, as the courts must oversee the process. This also means that the longer a will spends in probate the more costly it potentially becomes, which will eventually be taken from the estate.
Contact us at 609-545-2100 for a consultation to figure out if a will or trust is best for your estate planning goals.