A Revocable Living Trust and a Last Will and Testament both provide instructions for distributing your assets after death. However, the two documents differ in their creation and execution.
Planning your estate and your end-of-life arrangements is a unique experience for everyone. There are many ways to combine documents to ensure that the management and distribution of your assets fall in line with your wishes.
Each estate planning document has a specific purpose. Use this opportunity to compare similar forms and contracts to see how they best suit your needs.
How are Revocable Living Trusts and Last Wills similar?
A Revocable Living Trust is a legal document that a grantor (the owner of an estate) creates to transfer wealth or protect assets. At any point in their life, the grantor can revoke or amend their Living Trust.
With a Living Trust, the grantor appoints a trustee to control and manage their assets. A trustee is a person, or a group of people, who holds title to property or assets for the benefit of another person (the beneficiary). A trustee carries out the instructions for inheritance and distribution in accordance with the grantor’s last wishes.
Many people create living trusts and name themselves and their spouse as trustees. In this case, you have total control over your trusted assets and property while you’re alive. This is the same situation with a Last Will, where you control your property until you die.
Some people also name successor trustees who step in if something happens to the primary trustee. For instance, the primary trustee may become incapacitated or unwilling or unable to act. Having a successor is a good idea if you don’t have someone to be a co-trustee.
A Last Will and Testament describes how to distribute your assets to specific people or institutions (like charities) after your death. The testator can revoke or amend this document at any time in their life.
In a Last Will, the testator names beneficiaries for their assets and an executor to carry out their last wishes. You can name a relative or a non-relative, like your banker, as your executor.
Read more: How Bankruptcy Affects Inheritances And Estate Plans
What’s the difference between a Living Trust and a Last Will?
The main difference between these documents is that a Living Trust doesn’t need to go through probate to be executed.
Probate is the legal process in which a court determines the validity of a Last Will. If someone dies intestate—without leaving a Last Will—their estate still undergoes the process of probate. In this case, the court appoints a representative to act as the executor and divvies up the estate in accordance with state law.
One of the main advantages of having a Revocable Living Trust is that it skips the probate process because of the document’s nature as a private contract. Avoiding probate cuts down the time and expenses that come with distributing your assets to your beneficiaries in a Last Will.
People typically use trusts to protect assets with high monetary value. These assets might include real estate, business interests, stocks, bonds, or valuable personal property like antiques and jewelry. It’s uncommon to put lower-valued property or property that requires insurance (like a car) into living trusts. On the other hand, people can include all of their property and assets in their Last Will, regardless of value.
The steps and documents required for a trust to be valid complicate the distribution of assets. In comparison, estate distribution with a Will happens easily once probate courts validate the Will.
After completing your Living Trust document, you must transfer ownership of assets and property to your trust. For instance, you would transfer ownership of real estate into the trust using a document like a Quitclaim Deed. If you’re the trustor and the trustee, transfer the property from Morgan Smith (you) to Morgan Smith, Trustee of the Morgan Smith Living Trust.
The idea of the Living Trust is to secure your assets and control property, which is something that you can do in a Last Will as well. However, trusts best suit individuals with complex estates and high-value assets.
Read more: How a Living Trust and Pour-Over-Will Work Together
Can I keep my estate plans private?
If you create a Last Will and Testament, your estate plans become a part of public court records. In comparison, Revocable Living Trusts remain completely private because you can carry out each phase of the contract (creation, transfer of ownership of property, and inheritance of property) without filing with the probate court.
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Do I need a Last Will, a Living Trust, or both?
There are advantages to both documents, so examine your situation closely to determine whether a Living Trust or Will is better for you.
Living Trusts tend to work best for people with complicated estates, like business owners passing their companies to their children or other beneficiaries. Trusts also have a reputation of being relatively quick in their execution because they skip probate.
But Living Trusts only focus on the distribution of your assets, not the other aspects of your end-of-life planning. You still need a Will to name guardians for minor children, for instance. A Last Will works for assets you might have left out of your Living Trust, like your car.
Ultimately, it’s your estate and your choice how you want to plan it. Contact your lawyer for advice if you’re unsure how to handle your estate.