Legal Insurance
Living Trust vs. Will: What’s the Difference?
What’s the difference between a will and a living trust?
The main differences between wills and living trusts are what they can include and how they’re managed. However, both are key estate planning tools meant to protect and distribute assets to your loved ones.
When it comes to using a will and a living trust to protect your assets, understanding the differences between these options can be overwhelming. We’re here to help.
Let’s take a deeper dive into wills versus trusts and examine which might be best certain scenarios.
What’s a will?
A will is a legal document that details your assets — including money, personal property, and real estate — and provides instructions for how you’d like them handled after your death. A will names a beneficiary, or beneficiaries, to receive your assets and a trustee who’ll be responsible for distributing them.
Depending on the type of will you’re creating, wills can also name guardians for any dependents, designate power of attorney, and name your end-of-life healthcare decisions — should you need to plan for that.
What’s a living trust?
A living trust is a trust fund where your assets are held until a predetermined time, as well as the legal documentation that validates its status as a trust. The assets within it are distributed either upon your death or another date of your choosing. As with a will, a living trust names a beneficiary, or beneficiaries, and a trustee.
However, unlike a will, assets in a trust can be distributed before you die. For example, if you put money or property deeds into a trust account to be given to your child when they turn 21, they’ll be able to receive it when they come of age, whether you’re still alive or not.
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How are living trusts and wills different?
As mentioned above, the largest differences between wills and living trusts are what they include and how they’re managed. A will is strictly concerned with what happens to your assets after you die but doesn’t house your assets in the meantime. On the other hand, a living trust holds your assets until a predetermined time and provides instructions for how they’ll be managed and distributed. Additionally, wills are subject to probate court. This means, while you may have outlined how you want your assets to be distributed, the decision is still ultimately up to the court. A living trust typically allows you to bypass probate court and distribute your assets exactly how you wish.
However, a will provides the opportunity to name a guardian for any minor children or dependents, designate power of attorney, and outline end-of-life wishes. A living trust doesn’t afford you these options.
Wills vs. living trusts cheat sheet
Because there’s so much crossover between wills and trusts, it can be difficult to understand where the differences lie.
Knowing how they differ can help you determine which option is best for you or you may decide to add both to your estate planning checklist. Be sure to check your state laws to make sure you're in accordance with them.
|
Wills |
Trusts |
Can it be active while you’re still alive? |
No |
Yes |
Do you name a beneficiary? |
Yes |
Yes |
Is it subject to estate tax? |
Yes |
Yes, unless it’s an irrevocable trust. |
Is it subject to probate court? |
Yes |
Typically no |
Does it need to be notarized? |
Yes |
Typically no |
Does it require witnesses? |
Yes |
Typically no |
Can you outline your end-of-life wishes? |
Yes |
No |
Can you name a guardian? |
Yes |
No |
Is it a public record? |
Yes |
No |
Living trust vs. will: Which is better for you?
When trying to decide between a living trust or a will the first thing you should do is identify what’s most important for you, your loved ones, and your needs.
A will may be better for you if:
- You have children or dependents who are still minors.
- You have specific wishes for your end-of-life care.
- You would like to name a power of attorney.
A living trust might be better if:
- You want to avoid the probate process.
- You want your beneficiaries to have access to funds, property, or other assets while you’re still alive.
- You want to avoid estate tax with an irrevocable trust.
If both of these situations apply to you, it may be most prudent to have both a will and a living trust in place, as each serves a unique purpose.
If you’re unsure, talk to an estate planning lawyer about your specific circumstances. They’ll help you determine which option is a better fit for your life.