Last Wills and Living Trusts
Your will distributes your estate after your death, and so does a living trust. The primary difference is that your will goes through probate, a formal legal process of carrying out the instructions you've put in the document. Your living trust, on the other hand, does not go through probate; instead, the trustee distributes your property from the trust according to the rules you create for the trust. Your will is sometimes called a "last will" to distinguish it from a "living will," which deals with decisions after you become incapacitated. A "living trust" is simply a trust you create while you are still alive.
When to Use a Last Will
A will does more than merely tell those who survive you how to distribute your property. It also gives you the chance to choose who will be responsible for the life you leave behind, from who will pay your bills to who will raise your children. You make these decisions in your will by naming certain people to be your executor or personal representative and to be the guardian of your children, respectively. If you do not leave these instructions in a will, the probate court will choose an executor and a guardian on your behalf.
When to Use a Living Trust
A living trust allows you to avoid or shorten the probate process by passing some or all of your property to your chosen beneficiaries without sending that property through the probate court first. A living trust consists of the grantor, or person who created and funds the trust; a trustee, who manages the trust; and one or more beneficiaries, who receive the income, principal or other property from the trust. In addition to avoiding probate, you can also use a living trust to set up a steady income for minor children or a relative with disabilities. It is also much easier to change the beneficiaries of a living trust than to change the beneficiaries of a will, according to FindLaw.
When to Combine a Last Will and a Living Trust
You may include both a last will and a living trust in your estate plan. In two major situations, the combination may provide great benefits. First, a last will can contain nothing but a "pour-over" clause stating that any property you have that is not already in the living trust when you die transfers to the trust on your death. The pour-over will allows you to keep your assets in your name while you live, but transfer them to the trust to avoid probate when you die. The second situation is if you have minor children for whom you would like to provide a steady income. In this case, your last will can name your children's guardian, while the trust can be set up to give your children the interest income from the assets the trust holds without allowing them to squander the principal, according to the American Bar Association.