You have always been someone who has planned ahead and prepared for the unexpected. But, as hard as it may be to think about, there are additional steps you need to take to guide your loved ones and trusted financial professionals on how you would like them to care for your estate and the assets within it if you can no longer make decisions for yourself or if you pass away.
There are two key ways to document your estate plan: a will and a living trust. Each option has its benefits and limitations.
So which is right for you: a will or a living trust? Or both? This article will walk you through each and help you make the best decision for you and your family.
What Is a Will and What Is a Living Trust?
Both wills and living trusts are documents in which you name beneficiaries for your property. But there are key differences in the specifics.
In short, a will is a relatively simple document that details what should happen to your property after you die. You can also use your will to name guardians for your young children, name an executor, and provide other guidance, such as how to handle outstanding debts and what to do with taxes. After your death, your executor works, supervised by the probate court process, to sort out who gets what based on the terms of your will.
In contrast, the main feature of a living trust is that it appoints a trustee to manage and distribute your assets after they are transferred to a trust, which are then called trust property, after your death. This process happens instead of an executor working with a probate court.
Key Considerations: A Will or a Living Trust
So what aspects should you consider as you decide which document to utilize to help share your wishes with your loved ones?
If You Are Single
If you have assets and property, you should consider using a living trust to keep your assets out of probate court and guardianship. For married couples, the court and law generally passes this responsibility to your spouse, but if you are single, you will need a living trust to identify your beneficiaries without having to involve the court system.
If You Have Children
A will is needed to identify guardians for minors, which is something that a living trust is not able to establish.
However, in a trust, you and your family can make decisions about how to handle savings, retirement plans, and life insurance for your children, including when they would have access to it, without having to involve the court system because the trust would be the primary beneficiary.
In this case, you may want to discuss creating a will and a living trust with your personal financial advisor and other trusted partners.
Complex Property or Business Ownership
If you have a stake in a business or you own property in multiple states, establishing a living trust can be a bit more difficult, especially if the value of the business or property changes over time.
In either case, you will need to deed the property or ownership to the living trust so it can be brought into the management of your overall affairs.
If this is your situation, starting these conversations with legal and financial professionals can help make the process easier.
The Role of the Court System
Whether you want privacy or just want to make things easier on your family, another point to consider is the potential role of the judicial system if you choose to use a will.
When a will is filed with probate court to be exercised, it becomes part of public record and could be researched by others. However, a living will is a private contract between you, the trust to be created, and the trustees. Unless there is a dispute, the contents and terms of the trust will stay private.
A Will or a Living Trust: Which Is Best?
As with many things in the personal finance world, the answer is: It depends.
A living trust gives you more control with less judicial involvement with your assets, but there are legal limitations and personal situations that it cannot handle like a will can. Also, a trust can take more time and money to establish.
This is why it is important that you take the time to meet with a professional, talk through your situation, and learn more about how to establish the right plan for you and your family.
Ready to take the next step? Meet a member of our team to get started. And make sure to check out one of our free resources, 10 Things A Smart Investor Should Consider In an Economic Downturn, to launch your new financial journey.
About the Author
Garrett German* founded Harvest Wealth Group with the aim to create a meaningful experience that will impact his clients, in a significant way, both personally and financially. After your first meeting with our team, you’ll be on your way to financial clarity and confidence.