Both wills and living trusts can be used to designate how your assets are to be distributed once you pass away, but there are some significant differences between wills and trusts. While wills are simpler and cost less to create than trusts, trusts are not subject to probate if done and funded correctly.
The Legal Process of Probate
Probate is a legal process that follows a person’s death. During probate. the validity of the deceased person’s will must be established in court. Once this is established, the deceased individual’s assets and liabilities, such as past-due taxes and outstanding debts, must be reconciled; any liabilities, including legal fees, are paid for by the liquidation of the assets. The assets that remain are then distributed to the beneficiaries of the will. This entire process of probate is entered into the public record.
Wills vs Trust: How to Avoid Probate
With a living trust, you can avoid probate. Assets that are placed into a trust are then managed by the trustee. When people set up living trusts, they can either name themselves as trustees or a third party (often the trusted child). Upon death the trustee can pass on the assets to the beneficiaries designated in the trust (keeping in mind that creditors still may have a stake). Of course, the government still requires the payment of taxes on the transfer of these assets if the estate is large enough, but it does not become a matter of public record and the legal fees of probating a will can be eliminated.
Although the trustee manages the assets within the trust, specific guidelines can be placed on the trust. AS far as asset management and passing on assets goes, a trust gives people just as much control as a Personal Representative (Executor) in a will.
Like a will, any type of asset can be placed in a living trust. Everything from bank accounts to commodities can be placed in a trust. It may not be common, but a trust can even be used to manage a fine collection of artwork or tea pots.
Wills vs Trust: How to Choose The One That’s Right For You
If you only have a few assets, then a will may suit your situation well. It is an inexpensive, easy way to designate who you want to receive your assets upon your death.
If you have any assets of significant value though, a living trust may be a better option. It will help avoid probate, gives you more flexibility and speed up the transfer of assets. The key is to take the steps once the trust is executed to physically place the assets (bank accounts, brokerage accounts) into the trust. If that step is not taken upon death a probate will be required of any asset not placed into the trust.