Last will and testaments and living trusts are both integral to estate planning, although each has their unique functions, benefits and, to some degree, limitations. Before you begin establishing your own estate plan, it is vital to understand and compare the advantages and disadvantages that both offer before deciding which option is most effective for you and your personal needs. The wrong plan can leave your loved ones with little financial support or worse, no rights to claim any part of your estate.
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A last will is a legal instrument executed by an individual -- called a testator -- that defines how his estate should be managed and divided after his death. The will names the testator’s beneficiaries, who are the individuals or entities that receive specific assets or portions of his estate, according to his personal wishes. A will is incredibly versatile, allowing the testator to appoint a personal representative to manage his estate in his absence, transfer custody of his minor children or other dependents to a named guardian and provide instructions for his funerary arrangements.
Benefits of a Will
Perhaps the most notable benefit of a valid will is that is allows the testator to avoid intestacy probate, wherein the probate court divides the testator’s estate according to statutory succession guidelines. By establishing a will, the testator can define his own beneficiaries and choose precisely who receives what property. A will is also very beneficial to testators who are unmarried or in an unrecognized same-sex union, allowing the testator to grant elective rights to his partner as if his partner were his spouse, where state probate law only extends these rights to surviving spouses.
A trust inter vivos (literally, “between the living”) or, less formally, a living trust, is a trust established by an individual -- called a grantor -- during her lifetime. A living trust allows the grantor to jointly manage her real property, investments, cash assets and other interests. A trust must have an appointed trustee -- often, the grantor herself during her lifetime -- and a successive trustee to serve on the grantor’s behalf in the event she becomes incapacitated or upon her death. The grantor can then opt to name her heirs as beneficiaries to the income generated by the trust or dissolve the trust and bequeath the assets separately amongst her heirs after passing.
Benefits of a Living Trust
Although a living trust does not provide an avenue for the grantor to grant elective or other rights to a non-spousal partner, it does allow the grantor to provide financial support for her surviving partner and any other relative, friend or entity to whom she wishes to bequeath an inheritance. Living trusts also avoid probate entirely, which hastens the final disposition of the grantor’s estate and saves the estate from extraneous expenses arising from probate. Further, because trusts are not subject to probate, the grantor can maintain her personal privacy, whereas a will becomes available for public consumption immediately after filing.
Establishment & Expenses
Wills are inherently easier to execute; a testator can retain an attorney to draft a will for him for a nominal fee, purchase an inexpensive pre-made form or simply draft one himself on his home computer. Living trusts are a bit more complex and, although a grantor can draft and establish a living trust herself, retaining a qualified attorney is often necessary to ensure the trust is properly established. That being said, a last will is the cheaper option up front, but a living trust is typically the more cost efficient option over time, as the estate successfully avoids court costs and legal fees incurred during probate and enjoys reduced federal tax liability.