Did you know that fewer than 50% of American adults have estate planning documents? This is a concerning statistic, as it leaves the state as the default decision-maker. These cases often involve additional time and cost to effectively settle. Additionally, the distributions do not always align with the wishes of the deceased. To ensure that your estate is settled in the manner that you wish, it is crucial to complete appropriate estate planning documents, like a will or living trust.
The estate planning legal documents we hear most about are Wills and Living Trusts. Following are 5 key differences to be aware of when deciding which document is right for you:
The term probate refers to court proceedings that are conducted to ensure that assets are distributed appropriately. These proceedings are necessary for wills, but unnecessary for living trusts, which circumvent probate. With a Will, a court oversees asset distribution – this often leads to additional costs such as court fees, attorney fees, etc. It also delays distribution of the assets to the named beneficiaries as the court oversees the estate, it is not uncommon for this process to take nearly a year to complete the distribution, and can be much longer for complex or contested estates. A trust, in contrast, eliminates the need for probate as the Trustee becomes responsible for asset distribution as stated in the document. This allows for a faster distribution of funds and significant preservation of assets due to the elimination of court costs and attorney fees.
Most individuals may wish to keep the details of their asset distribution private. This is possible with a living trust, but not with a will. A living trust is only accessible to the Trust Grantor and Trustee, which keeps confidentially. A will, however, becomes a public court record as it goes through probate court proceedings. It is available to the public, disregarding confidentiality wishes of the deceased.
While both wills and living trusts provide instructions on how assets should be distributed after death, only living trusts also allows for instructions to be provided in the event of incapacitation. A will guides heirs only in the event that the will-maker is deceased. While it is possible to add a Durable Power of Attorney to a will for periods of incapacitation, not all financial institutions recognize it. A living trust, in contrast, guides Trustees if the trust-maker becomes disabled, extremely ill, or incapacitated.
The process of developing a will is simpler and requires only the documentation of wishes. A living trust requires this along with additional paperwork and the transfer of real property into the trust in order to have it become a part of the trust. This requires additional steps when adding properties to the trust, removing properties from the trust, buying a new property, or selling an existing property. Additional attorney and court fees may be necessary for these steps. You can lower some of these costs by using a Certified Legal Document Preparer.
If you have young children, you will likely want to document guardianship wishes as part of your estate plan. A will allows you to name a guardian for your minor children within the document itself. A living trust, however, has no provision for minor children guardianship. A “Nomination of Guardianship” should accompany your trust if you have minor children. It incorporates your wishes for the guardianship of minor children with your other estate planning documents.
In addition to the above, there are other differences between wills and living trusts that you need to consider. It is important to meet with a reputable advisor to prepare your estate planning documents for you. To learn more about how we can help, please contact us.
For more information about Living Trusts; read our blog post: Living Trust Basics
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