Here are some basic points to understand about both documents.
When you pass away, you leave behind an estate composed of your real property, personal property and other assets. Unless you leave instructions defining how these assets should be divided and amongst whom, the Government (of the country where assets are situated) decides which of your relatives will inherit your property.
You probably don’t like the idea of leaving your estate up to chance but choosing the right plan for your estate is confusing. Understanding the difference between a Will and a Living Trust and comparing the benefits and drawbacks of both options can help you make a better, more informed decision and establish the estate plan that works best for your personal needs.
Advantages of Last Will
A last Will is the most basic way to plan an estate. A Will is very simple to establish, and a testator (person writing the Will) can draft his/her own Will with little to no up-front costs. Wills offer a lot of flexibility for a testator who has a spouse, minor children or others for whom he wants to provide support after his death.
Same-sex partners and unmarried couples can also use a Will to grant rights and provide financial support to their loved one where Government Law/s normally would not. In this regard, a Will allows the testator to plan for more personal matters, such as funeral arrangements, how his children should be raised, care for his surviving pets or anything else the testator could need.
Advantages of a Living Trust
A Living Trust offers many of the same benefits as a Will but allows the testator to protect her financial privacy by completely avoiding probate – probate can last months, even years. While a Will becomes a part of public record during probate, only the beneficiaries of a Living Trust know how much revenue the trust generates, and only the trustee knows the full extent of the trust’s assets.
Living Trusts offer more control over the estate’s assets, allowing the testator to form a Living Trust to better handle his/her assets, investments and interests, control her business interests and manage his/her real property during her life, and then pass this authority onto a new trustee after his/her passing.
Living trusts can also avoid traditional estate taxes, saving more money for the decedent’s beneficiaries. Moreover, the decedent can establish a Living Trust during his/her lifetime, allowing him/her to take advantage of these same tax breaks while still alive.
Should you become mentally incapacitated and have named yourself as a beneficiary, your carers simply have to request funds to look after you.
The trust contents are immediately accessible to named beneficiaries so if the main bread-winner has passed away, the remaining loved ones can simply ask for money to support form the Trust. There are no legal hold-ups.
Disadvantages of Last Will Alone
In exchange for the flexibility a last Will offers, the testator’s estate incurs estate tax liability. The testator’s beneficiaries may also face income taxes and inheritance taxes, depending on their asset’s country laws, while the inheritance received from a Living Trust can mitigate certain taxes.
While probate does extend protection against fraud, embezzlement and mismanagement of estate assets, the testator’s Will becomes public record once filed. This allows the public to access and review the testator’s Will during and after probate. Probate also opens the possibility for challenges against the validity of the Will or the testator’s capacity, which possibly can overturn the Will and potentially subject the entire estate to intestacy probate.
Time is also a dilemma in many cases as probate can take months, even years and if this is the only written instruction for distribution, how can loved ones financially survive?
Disadvantages of a Living Trust
Compared to a Will, a Living Trust is very limited in application. Living Trusts can manage and pass on real property, but the decedent cannot arrange care for minor children, grant rights to her unmarried partner, plan her funeral or make other arrangements.
Without a Will, a Living Trust leaves the majority of the testator’s personal matters for intestacy probate. Additionally, Living Trusts cost substantially more to establish because the testator must fund the trust at the time he/she forms it.
Further, while a Living Trust allows the estate to avoid probate entirely, the court has no way to monitor the estate for potential fraud or abuse and far less opportunity to catch administrators who misappropriate the estate’s assets.
The ideal solution is to have both. Not everything can go into a Trust, for example your bank account – you use this daily and should not be under the charge of someone else.
A Will can be used to distribute everything not in your Living Trust at the time you pass away, into the Trust. This way, you create succession instructions and can, effectively, control your wealth from the grave. The Trust will last as long as there are assets in and if you direct for descendants, as soon as the next generation is born, the Trust is directed to continue.
You can also have the Living Trust act as a pre-nup for your children and instruct that only blood descendants be beneficiaries. A Will can only distribute once – whether to a beneficiary in person or to a Trust.