Planning your estate and your end-of-life arrangements is a unique experience for everyone. There are many ways to combine the documents you need to ensure that all of your assets are managed and distributed in line with your wishes.
Since each estate planning document has its own specific purpose, this presents an opportunity to compare similar forms and contracts to see how they best suit your needs. In this post, we’ll discuss a Revocable Living Trust and a Last Will and Testament—similar documents that both instruct how to distribute your assets after death but differ in their creation and execution processes.
What are Revocable Living Trusts and Last Wills?
A Revocable Living Trust is a legal document—usually made to transfer wealth, or protect assets—that can be revoked or amended during the life of the grantor (the owner of the estate in question). It’s a private contract where a grantor places their assets in the charge of a trustee. A trustee is an individual or a group of individuals who hold property or authority over and responsibility for the assets for the benefit of another person (the beneficiary). A trustee ensures that the instructions for inheritance and distribution are followed in accordance with the grantor’s last wishes.
Many people create living trusts and name themselves and usually a spouse as trustees, thus giving them total control over their trusted assets and property while they’re alive. This would be the exact same situation with a Last Will, where you control your property until you die.
Some people also name successor trustees who step in if something happens to the primary trustee, like they become incapacitated or are otherwise unwilling or unable to act as a trustee. Having a successor is a good idea if you are the named trustee and don’t have a spouse or other person to be a co-trustee.
A Last Will and Testament is a document that describes how you would like your assets distributed to specific people or institutions (like charities) after your death. This document, too, can be revoked and amended during the life of the testator. Similar to Living Trusts, in a Living Will the testator names beneficiaries for their assets and an executor (like a trustee) who is responsible for carrying out the last wishes. Often people use non-relative, third parties as executors, like your banker for example.
What’s the difference between a Living Trust and a Last Will?
One of the main differences between these documents is that a Living Trust doesn’t need to go through probate to be executed.
Probate is a legal process overseen by a probate court that determines the validity of a Last Will. If someone dies intestate—without leaving a Last Will—their estate still undergoes the process of probate, whereby the court appoints a representative to act as the executor and divvies up the estate in accordance with state law.
One of the main advantages of having a Revocable Living Trust is that it skips the probate process because of the document’s nature as a private contract. Avoiding probate can cut down the time and expenses that come with distributing your assets to your beneficiaries in a Last Will.
Trusts are typically used to protect assets with high monetary value like real estate, business interests, stocks, bonds, or valuable personal property like antiques and jewelry. Although property with lower monetary value or property that requires insurance (like a car) can technically be put into living trusts, it’s not very common. For vehicles specifically, it is unlikely that an insurance company would be willing to insure a vehicle legally owned by a trust—but, again, it’s not impossible.
Trusts can be more complicated than Wills when it comes to distributing assets because there are more steps and documents required for the Trust to be valid. After completing your Living Trust document, you’ll have to go through the process of transferring ownership of assets so that your property is legally owned by the trust. For instance, if you’re leaving real estate to a beneficiary, you would transfer your ownership of the property into the trust using a document like a Quitclaim Deed.
If you are the trustor and the trustee, you would likely be transferring the property from Morgan Smith (you) to Morgan Smith, Trustee of the Morgan Smith Living Trust, for example.
The idea of the Living Trust is to secure your assets and control property, which is something that you can do in a Last Will as well. However, Trusts are usually best suited for individuals with more complex estates or with a lot of high-value assets, someone who owns many properties in different states for instance.
Can I keep my estate plans private?
Last Wills can be used for the same purposes (of security and control of assets) as Living Trusts, but many people don’t like that their estate plans become public court records if they’re Will-based. The only reason Revocable Living Trusts remain completely private is because each of the phases of the contract (creation, transfer of ownership of property, and inheritance of property) can all be carried out without filing with the probate court.
Because they don’t use courts for execution, Revocable Living Trusts are usually exempt from court challenges, which is not the case for Last Wills.
Do I need a Last Will or a Living Trust? Or both?
There are advantages to both documents. Living Trusts tend to work best for people with complicated estates, like business owners who are passing leadership of their companies down to their children or other beneficiaries. Trusts also have a reputation of being relatively quick in their execution because they skip probate.
But don’t forget that Living Trusts only focus on the distribution of your assets, not the other aspects of your end-of-life planning. You still need a Will to name guardians for minor children, for instance. It’s also a good idea to have a Last Will for assets you might have left out of your Living Trust, like your car, and you might also want to create a Medical Power of Attorney to summarize your medical treatment preferences should you become incapacitated.
A trustee can step in immediately to handle your affairs if you’re incapacitated or ill; however, a Living Trust doesn’t relate your medical treatment preferences, such as your wishes for resuscitation and tube-feeding. Of course, if you name yourself as the trustee without a spouse as a co-trustee, that presents another hurdle for your estate if you don’t have a Medical Power of Attorney in place.
Ultimately, it’s your estate and your choice how you want to plan it. Evaluate your situation and research all of the possibilities available to you. If you’re still struggling, you can always contact a local attorney for advice.
Which document works best in your estate plans?