Living Trust or Will: Which Is Right for You?

This content has been reviewed and edited by an Investment Advisor Representative working for Global Predictions, an SEC-registered Investment Advisor.

Estate planning may sound complicated, but it doesn’t have to be. Two common tools you’ll hear about are living trusts and wills. So, which one should you choose? Don’t worry, we’ll break down the differences in a way that’s easy to understand, and by the end, you’ll have a much clearer idea of what’s right for your situation.

Understanding Living Trusts and Wills

• Living Trust: A living trust is a document that lets you transfer your assets into a trust while you're still alive. You manage them as long as you're around, and when you pass, the assets go to your beneficiaries—without the hassle of probate (more on that later!).
• Will: A will is a legal document where you state how you want your assets distributed after your death. However, it must go through probate, a court process that can take months.

Key Differences Between a Living Trust and a Will

To understand which option might be best for you, let's explore the fundamental differences between living trusts and wills.

1. Probate Process:

• Living Trust: Assets in a living trust avoid probate, which can make the transfer process faster and more private for your beneficiaries.
• Will: A will must go through probate, which means the distribution of your assets will become part of public record and may take several months or even years to complete.

Example: If you own a home and other significant assets, placing them in a living trust can prevent your loved ones from waiting months in probate court to gain access to these assets. This can be particularly important if your family depends on these resources to cover living expenses.

2. Privacy:

• Living Trust: A living trust is a private document, which means your estate's details remain confidential.
• Will: Since wills go through probate, they become public record, and anyone can access the details of your estate.

Example: If privacy is a concern for you—for instance, if you don't want the details of your estate, debts, or beneficiaries made public—a living trust might be a better choice.

3. Cost and Complexity:

• Living Trust: Setting up a living trust can be more expensive and time-consuming upfront compared to a will. It also requires you to actively transfer your assets into the trust.
• Will: Creating a will is generally simpler and less costly, but the probate process can incur additional costs after your death.

Hypothetical Scenario: Suppose Jane wants a straightforward estate plan. She has modest assets and is less concerned about probate. In her case, a will may be the simplest and most cost-effective solution. On the other hand, Mike, who has multiple properties and wants to make things as easy as possible for his heirs, might prefer a living trust despite the initial expense.

When Is a Living Trust the Better Choice?

You might want a living trust if:

• You Want to Avoid Probate: If probate sounds like a headache you'd rather your family avoid, a living trust is a smart choice.
• You Own Property in Multiple States: A living trust simplifies the process if your assets are spread out in different places.
• You Want Control Over How and When Assets Are Distributed: For example, if you want your kids to receive their inheritance at certain milestones, a trust allows for that flexibility.

Example: Tom wants to leave his grandchildren an inheritance but only after they turn 25. A living trust allows him to set these rules, ensuring the funds are used wisely.

When Should You Opt for a Will?

A will might be better for you if:

• You Have Minor Children: A will allows you to name a guardian, ensuring your kids will be cared for by someone you trust.
• You’re Looking for a Simple, Low-Cost Option: If your estate is straightforward, a will might cover everything you need at a lower cost.
• You Want to Specify Your Final Wishes: A will can include instructions for things like funeral plans, something a living trust can’t do.

Hypothetical Scenario: Emily, a single mother, uses a will to name her sister as the guardian of her two young kids. This ensures they’ll be cared for if anything happens to her.

Can You Have Both a Living Trust and a Will?

Absolutely! Many people use both. A pour-over will is a common companion to a living trust. It catches any assets not transferred into the trust and moves them there after death, ensuring nothing is left out of your estate plan.

Example: Sarah sets up a living trust but forgets to add her new car to it. A pour-over will ensures the car is included in her estate plan and distributed as she intended.

Pros and Cons Overview

Common Myths Debunked

• Myth: A living trust saves on estate taxes.

Truth: It doesn’t. A trust helps avoid probate but doesn’t affect estate taxes. For tax savings, you’ll need other strategies.

• Myth: Wills cover everything.

Truth: A will doesn’t control assets with designated beneficiaries (like life insurance policies or retirement accounts). Those go directly to the listed beneficiary, no matter what the will says.

What’s the Right Choice for You?

Choosing between a living trust and a will depends on your needs. A living trust can give you more control, privacy, and the ability to avoid probate, but it comes with a higher upfront cost. A will is simpler, cheaper, and perfect for naming guardians or handling straightforward estates.