What Is Better: a Living Trust, or Last Will?

By Carrie Ferland

Estate planning affords you the opportunity to ensure your money continues to sustain your family’s needs after your passing. Unfortunately, estate planning is perplexing for many, and making one wrong choice can mean the difference between financial security and economic disaster for your loved ones. Understanding your options and smart planning can help to ensure that your money supports your family long after your departure.

Estate planning affords you the opportunity to ensure your money continues to sustain your family’s needs after your passing. Unfortunately, estate planning is perplexing for many, and making one wrong choice can mean the difference between financial security and economic disaster for your loved ones. Understanding your options and smart planning can help to ensure that your money supports your family long after your departure.

Wills

A will is a written legal document, signed and witnessed, that conveys your instructions for the distribution of your real and personal property amongst your beneficiaries after your death. A will is a powerful tool that you can also use to appoint an administrator for your estate -- called an executor -- and name a guardian to retain custody of your children in your absence.

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Living Trusts

A living trust, formally known as a trust inter vivos -- literally, “among the living” -- is a trust created during your lifetime to manage your personal assets. Living trusts are commonly used by individuals who hold considerable assets, as it allows the owner to control all of his assets at once while taking advantage of certain tax breaks. A trustee manages living trusts, and is a position you can assume yourself and legally transfer to someone you trust after your passing.

Benefits

The most notable benefit of a will is the ease and affordability of establishing one: anyone can create a will, and there are little-to-no upfront costs. A will also allows you to ensure your minor children are physically cared for in your absence, provide instructions for funerary arrangements and convey other wishes not explicitly related to the administration of your estate. Living trusts afford you more control over assets and allow you to provide financially for your family. Done correctly, a living trust may save you and your loved ones a considerable amount in estate taxes, ensuring your family receives the most money possible after you are gone.

Choosing a Living Trust or Will

If you cannot afford to spend a lot of money on estate planning and your estate’s total net worth is less than $1 million, a will is generally the preferable option. If you have a minor child, only a will allows you to arrange for her care and financial support if both you and your spouse die, and you can still establish a trustee to manage your child's inheritance until she reaches a certain age. If you own a small business, you can also arrange for ownership and management through your will. If your estate is a little more complicated, you hold a considerable number of assets or your worth exceeds federal estate tax exemption limits, a living trust may be the better choice. If you have no children, or your children are grown, you can still provide them with financial support through a living trust. If you own a large business or multiple businesses, a living trust is a good way to manage all of your professional interests while still maintaining your privacy from the general public. If your needs cross somewhere in the middle, consider establishing both a will and a living trust. You can use your will to provide physical care for your spouse or partner, minor children and other relatives, and create a trust to manage and distribute your assets and the revenue it continues to earn after your death.

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Living Trusts vs. Last Wills

References

Related articles

What Are the Benefits of Wills?

Many adults do not have a will. Whether this results from an unwillingness to face the idea of death or from fear of exorbitant attorney fees, the consequences are severe. A person who dies intestate -- or without a will -- forfeits her opportunity to name who will inherit her assets. She also misses her chance to select an appropriate and trusted guardian for her minor children.

How to Set Up a Trust for Minor Children

Setting up a trust is largely a matter of making long-term decisions. When you’re establishing one for children, the implications of those decisions may reach even further into the future. The advantage to this is that your wealth can hopefully grow and compound by the time it reaches their hands. A disadvantage is that you might have to predict and accommodate the adults they will eventually become.

Do I Have the Right to Choose Who I Want to Handle My Estate After I Die Even If I'm Not Married?

Whether or not you are married has nothing to do with the ability to choose who will handle your estate when you die. When you make a will, you typically name an executor, called a personal representative in some states, to manage and distribute your estate. You can name a friend, relative, attorney or financial professional as your executor. The executor may or may not be a beneficiary of your estate.

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