"You can't take it with you" is more than a truism. Creating either a last will or a living trust while you are alive allows you to determine who takes possession of your money, home and other items in your estate after you die. While the two types of documents share similarities, they also differ in significant ways.
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A last will is a document that specifies how you want your possessions distributed after you die. When you write a will, you usually name an executor, someone who is trusted with carrying out your last wishes. In addition, an executor is charged with handling the final legal and financial affairs of the estate, including filing your final federal and state income tax returns, paying estate taxes if necessary, and settling the other financial obligations of the estate. A will does not cover life insurance premiums, annuities or retirement plans, which have designated beneficiaries, according to Bankrate.com.
A living trust is sometimes called an "inter vivos," which is Latin for "within one's life," according to the Free Legal Dictionary. A living trust transfers control of the property contained within the trust to a trustee, who administers the assets of the trust according to the wishes of the principal, or the person who created the trust. You may serve as trustee for a living trust. A successor is the person who takes over control of the trust when you die and distributes the assets of the trust according to the guidelines set in place when you established the trust.
Living Trust vs. Last Will
Many people transfer their possessions into a living trust to avoid probate, which places your will in the public record, according to the 'Lectric Law Library. Probate can also be lengthy and expensive with complex estates or disputed wills. Only property held in the name of the deceased must go through probate. Along with a trust, many individuals draft a "pour over" will that passes title of property accumulated after the trust was set up into the trust after the death of the deceased, explains the American Bar Association.
Cautions and Considerations
If you die intestate, or without a valid will, and your property is not contained within a trust, your property is subject to distribution according to the laws of succession of your state. The laws of succession grants the distribution of the possessions of the deceased in a manner that the state believes most people in similar circumstances would desire, and usually favors a living spouse and minor children. Creating a living trust is initially more expensive than drafting a last will, and represents a potential ongoing financial drain on the estate if poorly managed, according to the Federal Trade Commission.
References & Resources
- The Free Legal Dictionary: Living Trust
- The Free Legal Dictionary: Will
- The 'Lectric Law Library: Differences between Wills and Living Trusts
- Federal Trade Commission: Living Trust Offers -- How to Make Sure They're Trust-worthy
- American Bar Association: What Happens If You Die Without a Will?
- Bankrate.com: Estate Planning for Everyone -- Wills and Trusts
- American Bar Association: Glossary of Estate Planning Terms -- Pour Over Will
- American Bar Association: Glossary of Estate Planning Terms -- Living Trust
- American Bar Association: ABA Guide to Wills and Estates
- Lawyers.com: What Happens If I Die Without a Will?
- Bankrate.com: Estate Executor -- No Job for Amateurs
- Legal Services for the Elderly: Do I Need a Will?