58% of Baby Boomers (ages 53-71,) and 81% of those 72 or older have a living will or trust. They already see how smart it is to begin planning for the fact they will not be around forever. Likely this planning is tinged with years of experience watching family and friends go through the confusion and disputes that often arise over assets and estates when the original owner of them passes without making their wishes known.
One estate planning tool that many of these baby boomers have turned to, and that many more are looking at, is a living trust. A living trust and a last will & testament often go hand-in-hand. Here’s what you need to know about how they compare. After you get acquainted with these tools, reach out to us and let’s have a conversation about which one is best for you!
Probate Is Different Between a Trust and a Will
Unlike a will, a living trust is something you can use and benefit from while you are still alive. In a living trust, you transfer some or all of your assets into the trust (as the grantor), then you manage the trust as the trustee, and receive the benefits of the trust as the original beneficiary. Knowing that you may become incapable or unfit to manage your assets (trust) one day, you can designate someone to be responsible for your property if and when you become mentally or physically unable to do so. When you pass away, a successor trustee becomes responsible for carrying out the intent of the trust to whichever beneficiaries you’ve designated.
You and your spouse will likely want to be co-trustees while you are still alive, maintaining full control of your assets. Your spouse can take over if you become incapacitated.
Most couples name their children as successor trustees in the event of their death. If they are uncomfortable with this arrangement, they can appoint a professional to oversee their assets.
While you are alive, your living trust can be altered or dissolved at any time.
Both a will and trust give detailed inheritance instructions, and allow you to designate someone to oversee the distribution of your assets. With a will, however, your document will likely go through probate. This process can take months and become costly if it is contentious. Your assets will be tied up during this time.
With a living trust, the parts of your estate in the trust will not pass through probate court. Instead, the person you have designated as your trustee will carry out the requirements you outlined in the trust.
Opacity=Trusts | Transparency=Wills
Official documents, such as a will, and those that go through probate, become a part of the public record. Living trusts will not be subject to public scrutiny unless a beneficiary or trustee demands court approval. Many people prefer that their wishes remain a private matter and a trust is a great way to keep the value and assets of your estate confidential.
Why would that matter? Imagine you’re leaving $2 million for your 15-year-old son to inherit when they turn 20 years old. You can imagine some people will want to share their ideas on how to spend $2 million with anyone new to that kind of cash on hand. Or worse, if you wanted to leave that $ to your son, but your estranged sister knew about it and preyed on their guilt to siphon some of it away.
These are only two scenarios, the point here is that the fewer people you have poking around your estate and knowing who received what, the better-off the beneficiaries are likely to be.
For Estates of a Certain Size, Tax Planning Is Critical
Many folks with larger estates can take advantage of tax exemptions by dividing their assets smartly. Trusts and Wills have very different tax exposure risks. Make sure you choose to work with an estate planning attorney that knows about how taxes will affect your estate.
401K and Life Insurance
Many couples have a 401K or life insurance policy that they would like to leave to their children, if they do not reach the age of retirement. If you have a will, those funds would go into the hands of a court-approved guardian until your child reaches the age of 18.
With a revocable living trust, however, a trustee can accept these funds in the event of your death. You can decide if your child receives them at age 18, 25, or 30, or through some other manner other than age.
The Living Trust and the Will
Whether you draw up a living trust or a will, or likely both, depends upon the size of your estate and the complexity of your situation. A little research and consideration will save you and your loved ones a lot of time and heartache.
We are here to help.
We want you to be able to discuss these topics with familiarity and confidence that you have an expert team supporting you and your family when you need it. Contact us today; we’ll start you on your path to estate planning.