Early planning on how to divvy up your assets before your death or incapacitation isn’t morbid; it’s smart. Especially if you have children, you don’t want them to go through the long legal process of probate, where the courts can take a long time (and potentially money) to complete the transfer of asset ownership.
You’ve heard of having a will, but what about a living trust? They each serve different but equally important roles that you should consider integrating into your estate planning. Let’s go over what they are and how they’ll help!
What is a Will?
A will is a legally binding document that states exactly how your assets and responsibilities will be handled after your death, making sure the law enforces your intentions.
A will covers:
- Asset distribution: Specifies who inherits property, bank accounts, valuables, and even digital assets
- Guardianship: Designate caregivers for your minor children and dependents
- Executor appointment: Name a trusted person (or multiple people as backup) to manage your estate and carry out your wishes
- Debts and taxes: Instructs how outstanding bills, taxes, and other costs should be paid
- Special requests: You can include funeral wishes, charitable donations, and even disinheritance clauses (specifically excluding a child over age 18 from inheritance) where legally allowed.
There ARE some exceptions to a will, though, for instance, life insurance and retirement accounts with named beneficiaries bypass a will. And if there is any jointly owned property, like owning a home with your spouse, then it transfers automatically.
How a Will Goes Through Probate
Upon your death, probate occurs, which is a court-supervised process that validates your will and distributes assets accordingly. Here’s how it works:
- Validation: The court confirms the authenticity of the will and appoints the executor you’ve chosen
- Asset Inventory: The executor will locate and appraise all assets, like real estate and investments
- Debt Settlement: Creditors are notified of your death, and any valid debts/taxes remaining are paid from the estate
- Distribution: Remaining assets are distributed to the heirs following the will’s outline
- Closing: The court closes the estate once all the steps are complete
How long does probate take? It can take 6 to 12 months and even longer for more complicated estates! A probate is also a public process, so there could be potential family disputes.
A Will is Simple & Affordable
Wills are essential for everyone, and a basic will can easily be free or low-cost using online templates like Trust & Will or LegalZoom.
If you want to avoid making any errors, then hiring a lawyer can cost between $300 to $1,000 for a simple will.
Be sure to update your will after any major life events like marriage, divorce, new children, etc. This will help control your legacy and protect loved ones from legal hurdles!
What is a Living Trust?
A revocable living trust and a living trust are the same thing, and it’s another legal document that holds and manages your assets during your lifetime and distributes them after your death. You have full control and flexibility to modify or close the trust at any time.
Here’s how it works during your lifetime (while still alive)
- You act as a trustee, managing assets like real estate and investments to transfer into the trust
- You can add or remove assets, change beneficiaries, or close the trust completely
- If you become unable to manage the trust, your pre-chosen successor trustee will step in without court interference
When you pass away, your successor trustee distributes assets directly to your beneficiaries. With a living trust, your loved ones skip probate and avoid the long, stressful court process (often 6-12 months).
How Does a Living Trust Avoid Probate & Other Benefits
Assets in the trust are owned by the trust, not an individual, and that lets a living trust bypass the whole probate process.
Other benefits include:
- Speed: Distributions can happen in weeks instead of months
- Savings: Avoids 3-7% of the estate probate fees
- Privacy: The terms remain private instead of public probate records
- Distribution rules: You can be specific with conditions like only distributing X amount of money until age X to prevent heirs from spending all the money at once
Costs for a Living Trust
Drafting a trust with a lawyer can cost between $1,500 to $3,000, which is more expensive than a will alone, but it saves probate fees in the long run.
My parents used an estate planning attorney who had a “Living Trust and Will Package,” so having both documents at once cost about $2,000, as the estate wasn’t complex. For more complex estates, having the complete package can run up to $5,000 or more. It’s best to get multiple quotes and to look for an attorney that you feel comfortable working with.
When Does it Make Sense for a Will or a Living Trust?
Having a will might be enough if you have few assets, don’t mind the probate process, and mainly just want to name guardians for your children and distribute personal items.
A living trust makes more sense if you own real estate in multiple states, want to avoid probate for your family, have a complicated estate, have many beneficiaries, or want your finances to be private.
Having BOTH documents can offer the most complete protection, though. A living trust lets you avoid probate and keep finances private by transferring assets directly to your beneficiaries, but it ONLY covers the assets named in the trust. A will can act as a safety net to make sure any assets that were accidentally left out of the trust are still distributed per your wishes. A will also gives the ability to name guardians for minor children and funeral preferences. Having both will make sure nothing important falls through the cracks!
The Money Move
It’s never too early to start estate planning, especially if you have assets that you want to control and properly distribute to heirs. You can choose a will or a living trust, but keeping both gives you the strongest protection and lets you cover all bases. In addition, it minimizes the legal process of probate and maintains your privacy.
Taking the time to set up your estate plan now will save your loved ones stress and expenses later while they grieve. It’s a powerful way to ensure your wishes are honored and your legacy preserved!