What Is the Difference Between a Living Trust and an Estate Account?

By Jane Meggitt

Living trusts and estate accounts are entirely different entities. The former is an estate-planning tool that allows a person to control assets placed in the trust during his lifetime and simplifies distribution to beneficiaries after death. The latter is an account opened by the executor of an estate after probate has been commenced to pay the estate's taxes, debts and any other necessary distributions out of estate assets.

Living Trust

A living trust, usually drafted with your attorney, is a document that acts in some aspects like a will. You put assets into the living trust such as your house, stocks and bonds, and bank accounts then typically name yourself as trustee. In the capacity of trustee, you administer these assets while you live, and when you die, the assets pass to the beneficiaries you named in the trust, bypassing probate. In other words, you don't technically own the assets, as they are now owned by the living trust, but you retain full control over them. Most living trusts are revocable, which means you can change the terms at any point in your life, or you can dissolve the trust entirely. When you die, the trust becomes irrevocable and cannot be changed.

Probate

Probate is the process of proving a decedent's will in court. Probate laws vary by state, but generally, the probate court in the county where the decedent resided formally appoints the executor named in the will, who is responsible for estate administration. The executor controls all aspects of any property titled in the decedent's name. She must inventory all of the estate's assets, including the value of each asset at the time of death. Depending on the size of the estate and other variables, such as challenges by heirs or beneficiaries, the probate process can take a year or more before assets are distributed.

Protect your loved ones. Start My Estate Plan

Estate Account

Before opening an estate account with a bank or other financial institution, the executor first must apply for a tax identification number for the estate from the Internal Revenue Service. The decedent's Social Security number cannot be used for the estate account. The executor must provide the financial institution with a certified copy of the death certificate and a certified copy of letters testamentary issued by the court – documents naming the executor as estate administrator. The executor must also ensure that the decedent's probate assets, such as bank and brokerage accounts, are re-titled "The Estate of ..." rather than left in the decedent's name until the assets are distributed to heirs and beneficiaries.

Court Supervision

Living trusts bypass probate and allow more timely distribution of assets by the trust's executor, but there are certain disadvantages. The executor of an estate going through probate is under court supervision and must supply the probate court with regular accountings. The executor of a trust has much more leeway – but much less supervision – which can be problematic if the individual’s honesty comes into question. Additionally, even if you create a living trust, you still need a will. Any assets not held in the trust must be distributed in accordance with the will.

Protect your loved ones. Start My Estate Plan
Can an Executor of an Estate Distribute Gifts From a Trust?
 

References

Related articles

When Does a Testamentary Trust Will Go Through Probate?

When you die, many of your assets will have to go through probate before your estate’s representative can distribute them to your beneficiaries. Probate is the process whereby a representative for your estate gathers your assets, pays your creditors and distributes your remaining property under the terms of your will. Whether your will gives these assets directly to your beneficiaries or places them in a trust, your assets must go through probate.

Should a 401(k) Be Put Into a Living Trust?

A living trust can be an important part of an estate plan, allowing assets to pass directly to named beneficiaries without having to go through a court-administered probate process. Many assets can be included in the trust, such as real estate, vehicles and bank accounts. But 401(k)s, IRAs and some other retirement accounts cannot be placed in a trust.

Is a Living Trust Liable or Subject to Probate?

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it differs from other trusts in that the trust creator, or grantor, can also serve as the trustee and can make changes to, or even revoke, the trust in its entirety during his lifetime. Living trusts are attractive because the grantor retains ultimate control over his assets while he is alive, but they are most commonly used to avoid probate.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

The Advantages of Changing a Bank Account Title to a Living Trust

A living trust, which is created during the grantor's lifetime, is an estate planning tool used as a holding area for ...

Guidelines for Using a Pour-Over Will in a Living Trust

Few things in law are exactly what they sound like, but a pour-over will is one. When you die, it essentially "pours" ...

Living Trusts & Bank Accounts

You can place your bank accounts and other assets in a living trust so they bypass probate when you die. Avoiding ...

How to Transfer a Vanguard Account to a Living Trust

Transferring property to a living trust is an important step in setting up the trust. Investment accounts, such as ...

Browse by category
Ready to Begin? GET STARTED