Do I want a Will or a Living Trust?
What is a Will?
A Will is a written document in special legal form by which a living person tells their desires for the disposal of their property upon death. The assets of someone who dies without a Will (or a Living Trust) will be disposed of by operation of law, which may not be according to the wishes of the deceased person! For example, a minor child might take ownership of all your assets at the age of 18, or property might go to a close blood relative to whom you haven't spoken for years.
A Will does not come into effect until the testator (the one making the Will) dies. At that time, the Will is filed with the Probate Court, and the person named in the Will as Executor takes over the deceased person's financial affairs, under Court supervision. Assets are gathered and listed; debts are listed and paid; taxes are determined and paid. When all is complete (and this process takes six months to a year), the Executor distributes property either to trusts set up by the Will (for example, trusts for minor children) or to the beneficiaries directly: whatever the Will provides.
What is a "Living Trust?"
A "Living Trust" is a trust set up and operational while the person is still alive. (That's why it's called a "living" trust.) It owns all the property of the person who sets it up; that person ordinarily acts as Trustee during their lifetime. That person also has perfectly free access to all the trust assets during their lifetime, and may revoke or change the Trust at any time. This Trust, because of its nature, does not file income tax returns during the person's lifetime, nor does it provide any protection against creditors.
Upon the death of the person who set it up (the "settlor"), the nature of the Living Trust changes. The document will name someone to act as Trustee after the death of the settlor; that person now acts in something of the same way as an Executor: that is, that person collects trust assets, pays debts and taxes, and finally distributes the property to the proper place, either to new trusts for minor children or to other people: whatever the document provides. All of this is done, however, without Court supervision. No Will is filed with the Court.
Some Points of Comparison Between a Will and a Living Trust
1. A Living Trust has no effect whatever on any tax, whether income tax, gift tax or estate tax. This cannot be said often enough. The very same tax planning can and usually does take place in either document. The institution of a Living Trust will not save a penny of tax, whatever we all may have heard on television.
2. Some expenses upon death will be the same either way. Lawyers and accountants must be hired and paid when a person with property dies, no matter what form the estate plan takes. Trustees should be paid for their very substantial efforts, just as Executors are. Likewise, the delay in final distribution of the property, since that depends on getting everything in order (whether with Court help or not), is usually about the same.
3. A Living Trust saves some Probate Court expenses. Although substantial estates typically bargain with attorneys about the percentage fee, it just does take more time and effort to check everything with the Probate Court, file notices, file accountings, and so forth. This extra work occasions extra expenses, sometimes a lot of extra expenses.
4. Probate is a hassle for survivors: sometimes a big hassle. There are numerous filings and notices, and sometimes delays occasioned by the necessity of getting Court approval for so many things.
5. A Living Trust is private. A Will must be filed with the Court; not so the Living Trust. We have had clients who had extremely valuable assets: in one case, a painting by Picasso: who did not wish to give public notice to thieves about its existence and location by filing a Will on public record. That client chose a Living Trust for this reason alone.
6. Administration of a Living Trust is easier and more informal upon death than the probate of a Will. This is often a deciding factor where an elderly couple is considering the burden upon the survivor.
7. On the other hand, it is very easy for someone who becomes Trustee after the death of the settlor to steal from a Living Trust, whereas stealing from a probate estate, while it can be done, is very difficult with the Court watching every move. Sometimes families where there is known dishonesty, known dispute, or no deeply trusted person to take over upon death, are better off under Court protection.
8. A Living Trust can be a hassle during life. It, not you, owns everything; keeping records - and the whole concept - straight can be difficult for many people. A Living Trust requires that all substantial property henceforth, for as long as the Trust exists, be taken in the ownership of the Trust. Many people find this cumbersome.
9. Whereas a Will is more expensive after death, a Living Trust is more expensive during life. The biggest expense is the initial one: transferring all assets into the Trust in the first place.
10. A Living Trust provides some protection upon disability. It can and usually does provide for someone to take over the management of finances should the settlor become incapacitated; this is much easier and cheaper than a Court-ordered conservatorship if this ever becomes an issue. This can be a big factor for the elderly. This problem can also be solved, however, by the use of a Durable Power of Attorney for Property Management.
11. Probate provides a way to cut off unknown debts more quickly, and with a court order. If any creditor does not come forward during the claims period (four months from filing a notice of death with the Court) he or she is barred forever from getting paid. Thus the assets pass to the heirs free and clear. A Living Trust provides no such quick protection from lurking creditors; in general, debts are cut off by the statute of limitations one year after death. Where there are or might be unknown debts (as, a doctor's or a lawyer's estate concerned about latent malpractice claims, or just someone a little careless about money) a Will might be more suitable protection for the survivors.
In general, see the Article: Probate: What is It, What Does it Cost?
So, what's right for me?
As you can tell, this is a very personal and individual question, and depends very much on your personal situation. What is right for one person might be very wrong for the next!
If you have any further questions, or would like to discuss the above material, please feel free to Contact Us!
A Will is a written document in special legal form by which a living person tells their desires for the disposal of their property upon death. The assets of someone who dies without a Will (or a Living Trust) will be disposed of by operation of law, which may not be according to the wishes of the deceased person! For example, a minor child might take ownership of all your assets at the age of 18, or property might go to a close blood relative to whom you haven't spoken for years.
A Will does not come into effect until the testator (the one making the Will) dies. At that time, the Will is filed with the Probate Court, and the person named in the Will as Executor takes over the deceased person's financial affairs, under Court supervision. Assets are gathered and listed; debts are listed and paid; taxes are determined and paid. When all is complete (and this process takes six months to a year), the Executor distributes property either to trusts set up by the Will (for example, trusts for minor children) or to the beneficiaries directly: whatever the Will provides.
What is a "Living Trust?"
A "Living Trust" is a trust set up and operational while the person is still alive. (That's why it's called a "living" trust.) It owns all the property of the person who sets it up; that person ordinarily acts as Trustee during their lifetime. That person also has perfectly free access to all the trust assets during their lifetime, and may revoke or change the Trust at any time. This Trust, because of its nature, does not file income tax returns during the person's lifetime, nor does it provide any protection against creditors.
Upon the death of the person who set it up (the "settlor"), the nature of the Living Trust changes. The document will name someone to act as Trustee after the death of the settlor; that person now acts in something of the same way as an Executor: that is, that person collects trust assets, pays debts and taxes, and finally distributes the property to the proper place, either to new trusts for minor children or to other people: whatever the document provides. All of this is done, however, without Court supervision. No Will is filed with the Court.
Some Points of Comparison Between a Will and a Living Trust
1. A Living Trust has no effect whatever on any tax, whether income tax, gift tax or estate tax. This cannot be said often enough. The very same tax planning can and usually does take place in either document. The institution of a Living Trust will not save a penny of tax, whatever we all may have heard on television.
2. Some expenses upon death will be the same either way. Lawyers and accountants must be hired and paid when a person with property dies, no matter what form the estate plan takes. Trustees should be paid for their very substantial efforts, just as Executors are. Likewise, the delay in final distribution of the property, since that depends on getting everything in order (whether with Court help or not), is usually about the same.
3. A Living Trust saves some Probate Court expenses. Although substantial estates typically bargain with attorneys about the percentage fee, it just does take more time and effort to check everything with the Probate Court, file notices, file accountings, and so forth. This extra work occasions extra expenses, sometimes a lot of extra expenses.
4. Probate is a hassle for survivors: sometimes a big hassle. There are numerous filings and notices, and sometimes delays occasioned by the necessity of getting Court approval for so many things.
5. A Living Trust is private. A Will must be filed with the Court; not so the Living Trust. We have had clients who had extremely valuable assets: in one case, a painting by Picasso: who did not wish to give public notice to thieves about its existence and location by filing a Will on public record. That client chose a Living Trust for this reason alone.
6. Administration of a Living Trust is easier and more informal upon death than the probate of a Will. This is often a deciding factor where an elderly couple is considering the burden upon the survivor.
7. On the other hand, it is very easy for someone who becomes Trustee after the death of the settlor to steal from a Living Trust, whereas stealing from a probate estate, while it can be done, is very difficult with the Court watching every move. Sometimes families where there is known dishonesty, known dispute, or no deeply trusted person to take over upon death, are better off under Court protection.
8. A Living Trust can be a hassle during life. It, not you, owns everything; keeping records - and the whole concept - straight can be difficult for many people. A Living Trust requires that all substantial property henceforth, for as long as the Trust exists, be taken in the ownership of the Trust. Many people find this cumbersome.
9. Whereas a Will is more expensive after death, a Living Trust is more expensive during life. The biggest expense is the initial one: transferring all assets into the Trust in the first place.
10. A Living Trust provides some protection upon disability. It can and usually does provide for someone to take over the management of finances should the settlor become incapacitated; this is much easier and cheaper than a Court-ordered conservatorship if this ever becomes an issue. This can be a big factor for the elderly. This problem can also be solved, however, by the use of a Durable Power of Attorney for Property Management.
11. Probate provides a way to cut off unknown debts more quickly, and with a court order. If any creditor does not come forward during the claims period (four months from filing a notice of death with the Court) he or she is barred forever from getting paid. Thus the assets pass to the heirs free and clear. A Living Trust provides no such quick protection from lurking creditors; in general, debts are cut off by the statute of limitations one year after death. Where there are or might be unknown debts (as, a doctor's or a lawyer's estate concerned about latent malpractice claims, or just someone a little careless about money) a Will might be more suitable protection for the survivors.
In general, see the Article: Probate: What is It, What Does it Cost?
So, what's right for me?
As you can tell, this is a very personal and individual question, and depends very much on your personal situation. What is right for one person might be very wrong for the next!
If you have any further questions, or would like to discuss the above material, please feel free to Contact Us!
