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.

Tips in Making a Family Tree for Your Estate Plan   Retirement Planning: It's About More Than Just Finances   Preparing and Writing Your Own Living Will   How to Include Your Pets in Your Estate Plan   Planning For Your Personal Effects   How to Avoid a Guardianship   

Trust Planning: Wills Vs Trusts

Wills vs Trusts: which is best for you?

A trust is basically a legal contract that transfers property and assets from one person, the grantor, to another person or group of person, the beneficiaries, through the trustee. The GRANTOR is the person with the property or asset to transfer. The TRUSTEE takes care of the assets and or property for the benefits of the BENEFICIARIES. This is often done while the grantor is still alive, hence, the name Living Trust.

A will, on the other hand is a deed that states how you would like your property, assets and other effects managed and distributed or divided upon your death. There is also PROBATE, the process in which the will is submitted to a court for administration after your passing and for accomplishment. The EXECUTOR of the will, usually a person named in the will and usually a lawyer, is the person responsible for managing the affairs of the estate as it goes through probate. The court will then supervise your estate and the distribution of your assets as descried in your will with specifications on the requisites for transfer of your assets.

Choosing: pros and cons

When looking at wills vs trusts, trusts seem to have the upper hand. Trusts, as stated above, are acted upon while you are still alive, thus giving you the opportunity to supervise the transfer of ownership of assets and property personally. With living trusts, there are revocable and irrevocable trusts. The revocable trust can be changed at anytime if the grantor is not satisfied or is having second thoughts about the beneficiary or the trustee. Irrevocable trusts cannot be changed, well not without a lengthy process, so the grantor should be careful when trust planning an irrevocable trust.

When it comes to a will, given that you will be dead by the time the will is executed, you can not oversee the transfer yourself. Although the will is very specific in what you want done, it usually takes a long time to process. The probate, for one thing, takes a lot of time, and also requires a lawyer which incurs cost to your estate.

So, in the comparison of wills vs. trusts, the living trusts come out as the strong and practical choice. But in choosing which is best for you is up to you. The trick is to research more and finding out more about them in other wills vs trusts comparison.

It all comes down to careful planning.

Tips in Making a Family Tree for Your Estate Plan   Retirement Planning: It's About More Than Just Finances   Preparing and Writing Your Own Living Will   Planning For Your Personal Effects   

Protecting Your Loved One With a Special Needs Trust

If, like Sabina and me, you have a loved one who is disabled, then you know how important government assistance programs can be to their well-being. But to qualify for these programs, your dependent must have limited finances. So, any inheritance you leave him or her could potentially put their eligibility for government assistance at risk.

So, how can you provide for a loved one without interfering with government assistance?

What you need is a Special Needs Trust.

This unique legal document allows you to provide for your dependent's supplemental needs without disqualifying him or her from programs such as Social Security and Medicaid.

Upon your death, any funds you intended for your disabled dependent will be transferred to a special trust, created for the sole purpose of providing for your dependent. Because the funds are not in your dependent's name and are managed by a third-party trustee, your dependent can continue to benefit from government assistance.

Of course, there are restrictions on what the trust can pay for but in general, you're allowed to provide for any supplemental needs, such as cable television, travel expenses, education, entertainment and the like. The trust can also provide your dependent with home health care services, a car, clothing and even pay for medical expenses. Just remember than any asset that requires a title or deed must be in the name of the trust and not your dependent.

This allows you to ensure that your disabled dependent is well provided for and enjoys a rich and happy life while still qualifying for those much-needed government programs.

Who Should Be Trustee?

Choosing a trustee for a Special Needs Trust is especially important because the person you choose will have authority and control over the funds in the trust. That means you need to be able to trust this person completely, especially if your dependent is mentally handicapped and unable to recognize any misappropriation of funds. Many people choose a parent or sibling of the disabled person to act as trustee, but you can select anyone you want, including a law firm or a financial institution.

Tips in Making a Family Tree for Your Estate Plan   Retirement Planning: It's About More Than Just Finances   Preparing and Writing Your Own Living Will   How to Include Your Pets in Your Estate Plan   Planning For Your Personal Effects   How to Avoid a Guardianship