Wills vs. Living Trusts: What’s the Difference? Do You Need Both?
Wills and living trusts are two very different types of estate planning tools that can serve both similar and different purposes. If you are putting together an estate plan, which one should you use? Should you use both? Here is a brief introduction to what you need to know:
What is a Will?
A will is an estate planning document that specifies who should receive your assets when you die. But, beyond this, a will is also a tool used to name a personal representative (the person who will be responsible for managing your final affairs i.e. the “executor”); and, if you have minor children, you can use your will to appoint a guardian in the event that neither parent is available. Having a will provides certainty for your loved ones, and it can also help mitigate any potential conflicts in terms of who you want to serve as the personal representative or guardian.
What is a Living Trust?
A living trust is also an estate planning tool that can be used to distribute your assets after your death. It can also be used to designate a trustee, who is someone that will manage your assets and distribute them to your beneficiaries, after you are gone. For many people, a living trust can be a tool for achieving significant tax savings. A living trust is frequently referred to as a revocable trust.
Key Differences Between Wills and Living Trusts
As you can see, many of the core functions of wills and living trusts overlap. Why, then, are living trusts often the preferred vehicle for transferring assets at death, and why would a person choose to have a will and a living trust?
The most fundamental, and in many respects the most important, difference between wills and living trusts is that while wills are subject to probate, living trusts are not. Probate is the formal court process for administering a person’s estate. While probate can be relatively straightforward for simple estates, it can also be difficult and time-consuming, and it has the potential to lead to costly disputes. As a result, avoiding probate is often a key aspect of the estate planning process.
Terms of Transfer
A living trust only avoids probate only if it owns your assets (house, investment accounts, etc. Most importantly, you can name a successor trustee that will fill your shoes after you are gone and carry out your wishes outside of probate. With a living trust, you can place terms and conditions on the distribution of your estate to your beneficiaries that the trustee you name is required to carry out. For example, if you have minor children, you can specify that your trustee will manage the trust for your children’s benefit until they reach a specified age.
Using a Will and a Living Trust to Build a Sound Estate Plan
For many people, the best approach will be to prepare a will and a living trust. With this approach, the living trust serves as the primary vehicle for distributing assets, and the will serves as a “backup” for any assets have not been placed into the trust prior to the time of death. The will is still necessary to appoint a guardian for minor children. In any case, the key is to make informed decisions, and build a comprehensive estate plan that is well-suited to your personal family and financial circumstances.
Speak with a Cambridge, MA Estate Planning Attorney in Confidence
If you have more questions about incorporating a will or living trust (or both) into your estate plan, we encourage us to contact us for an initial estate planning consultation. To speak with one of our Cambridge, MA attorneys in confidence, please call 617-453-9001 or request an appointment online today.