What are the differences between a Living Trust and a Will?

Each of us has assets, whether they are houses in our name, cars, or jewelries. Most of us would like to have control over those assets and have the final say in who gets what once we are gone. Most people understand that a Will or a Living Trust accomplishes that. But there are significant differences between a Will and a Living Trust.  A Living Trust avoids probate. A Living Trust avoids conservatorship. And, a Living Trust allows control over the distribution of assets. Which one should you choose? Below is brief overview of the advantages and disadvantageous of each.

Avoiding Probate

The advantage of a Living Trust vs. a Will is that no probate is necessary. The administration of the Living Trust is carried out by a trustee. The son, daughter, or whomever your client chooses as the successor trustee. It is often said that “if there is a will, there is a way”. If there is only a Will and the combined assets left behind are over $150,000, there is always going to be a probate. If your client left a Will that says a daughter is to inherit a house that is worth $600,000 and he/she does not have a Living Trust, the estate is going to pay approximately $33,000 in probate fees and it’s going to take approximately 9 months in the probate court to transfer the house into the daughter’s name or give legal rights to the daughter to sell the house.

Planning for Disability

A Living Trust can accommodate disability. If all your client has is a Will, and if he/she becomes disabled, then the court would have to appoint a conservator to take care of the disabled person. If a husband and wife have a Will but no Living Trust, and the husband has dementia and the wife asks you to sell their house for them so that she can use the proceeds to take care of her husband, court action is going to be required and that may take a long time. In this situation, they cannot sell the house because the husband with dementia does not have the required capacity to sign your contract or escrow paperwork. In order to sell the house, the court would need to appoint a conservator over the husband. Getting the court involved in their personal life to determine mental capacity could be embarrassing to them. However, if they have a Living Trust, the Living Trust normally already has a financial power of attorney built in so that it can handle this type of situation and avoids having to get the court involved. The avoidance of a conversatorship is a significant benefit in having a Living Trust.

Ensuring Confidentiality

Another important advantage of a Living Trust is that it gives your clients privacy. Whatever assets they own are private to the world. But if they have only a Will, that Will is going to become public to the world because that Will is going to be admitted to the probate court. Court records are always public records.

Advantages Outweigh the Cost

It is usually less expensive to draft a Will. A Living Trust costs more because it is an integrated estate planning tool. In a Living Trust, your clients can designate: (1) who gets their assets and, (2) when they get these assets and, (3) put in conditions and criteria specifying when someone is to get any asset (such as “you must go to college to collect a certain sum of money”). For example, if you client only has a Will and if your client’s estate is worth $1 million dollars and they have an eighteen year old son; when they die, their eighteen year-old son is going to inherit the $1 million immediately. The eighteen year old son might spend all the money relatively quickly. But, if they have a Living Trust, they can control when and how he gets the money, including specifying that he must go to college first.

A Living Trust is Best for Most People:

For people with assets over $150,000, the benefits of avoiding probate, avoiding conservatorship, ensuring privacy, and being able to specifically control the manner of distribution of those assets are well worth the extra cost of creating a Living Trust.