What’s the Difference Between a Last Will and a Living Trust?

Before visiting your estate lawyer, it’s a good idea to spend some time learning about the various documents and procedures involved with estate planning.

An essential topic to every estate plan is probate. Probate is a court-supervised procedure for transferring the legal title of your assets after death to your beneficiaries. The probate process involves:

  • Proving to the Court that a Will exists and is valid.
  • Appointing a legal representative with authority to act on behalf of the estate.
  • Identifying and appraising the property of the estate.
  • Paying debts and taxes.
  • Distributing the remaining property according to the beneficiaries.

Probate proceedings are public records and typically last several months. Any property listed in your name that does not automatically transfer upon your death, is considered probate property. For this reason, a last will goes to probate and a living trust does not.

You may have been told that a trust is more ideal than a will since it can avoid probate. However, there are other details to consider when choosing an estate plan.

Last Will and Testaments

After a will is drawn up, it must go through a formal legal procedure called executing the will. This requires witnesses to the signing of the will. A will is put into effect only upon death, with the provisions controlling all assets subject to probate. Any assigned accounts are not subject to probate and will not be distributed under the terms of a will. Non-probate property such as life insurance, retirement plans, and joint tenancy accounts will pass directly to the named beneficiaries by the institution holding the account.

When it comes to costs, wills are usually cheaper to create, but more expensive down the road when heirs have to manage the estate. A will provides little assistance for asset management while the person is living. If a person becomes physically or mentally incapacitated, the court must appoint a guardian to manage the estate. Even with a good power of attorney, this process is usually burdensome and expensive.

Every state has its own variation of laws that pertain to last wills. When a will is clearly laid out, the accepted rule is that if a will was valid in the state it was made, it remains valid even when moving to a different state. However, if there are any uncertainties or exclusions, the will is usually interpreted by the laws of the state of residency. Thus, other state-specific documents should be created in the new state after each move.

In order to change or add anything in a last will, a codicil must be filed. A codicil is an amendment which must be executed with the same formalities as the original will. Sometimes it is simpler to draw up a new will instead. The original will and any codicils must be presented after death.

While a last will must go through probate, there are simpler types of probate depending on size and type of assets and whether or not there is any contest to the will.

Living Trusts

A living trust is a contract between the creator of the contract and the trustee who agrees to hold assets for the beneficiaries. Each trust has three necessary parties: grantor, trustee, and beneficiary. Typically, one person is all three. The grantor retains all rights to manage the trust while alive and legally competent.

Any terms and conditions can be added, since living trusts are contractual; and because there is much less variation in state trust laws, they can be carried to different states without significant problems. Assets can be added and removed at any time without any tax penalties. As with other contractual arrangements, trusts are not usually required to become public knowledge.

Living trusts are more expensive to create and maintain, but leave fewer burdens on a spouse, children or other heirs later. If the grantor becomes incapacitated, the living trust names a successor trustee to take over and continue to manage the trust. Asset management as a successor trustee is generally much simpler than through the use of a power of attorney.

At the death of the grantor, the terms of the trust define who inherits the trust. The assets can be distributed to the beneficiaries in any manner the grantor chooses. The distribution is private and does not need any court supervision, so the successor trustee can immediately access any accounts held in the trust.

A living trust is designed so that the assets are not a part of the probate process. However, this only works if the provisions are properly put in place during life.

Estate Planning

Both wills and trusts are effective tools to manage an estate during and after life. There are no “one size fits all” plans, so it’s important to discuss your options with an estate lawyer.

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