In recent years, many people have chosen to forego the traditional will and instead, have opted for a living trust. In many instances, it’s the best choice because of the many benefits it offers. But is it right for everyone? We’ll take a look at both options in order to help you determine whether a traditional will or a living trust is best for your specific needs.
First, let’s define each document. A will is a legal document used to designate beneficiaries for a deceased person’s assets. These documents are revocable, meaning you can revoke, edit or otherwise change your will as your life evolves. They also allow for an appointment of any guardians for minor children you have.
On the other hand, a living trust is used to provide lifetime asset management as well as distributions after death. They’re ideal for property management and should a person become disabled, whether through an accident or an illness, a successor trustee can step in and oversee the trust management. This way, you may bypass the lengthy and sometimes expensive court intervention.
Many clients ask us how a trust can help avoid probate. When you establish the trust, it becomes its own entity. You don’t “own” it, so it’s not counted as part of your estate. Remember, though, you must fund the trust. At the time of your death, only the property that you own goes through probate.
We know that a living trust covers the bases so that our survivors can avoid probate. If your assets aren’t owned by you, there’s no reason for probate.
A will, in most instances, goes through the formal probate process. There are expedited processes in California that allow for a more streamlined (and faster) process if the estate qualifies as a “small estate”.
It’s more common to use a living trust if you have minor children since you can designate your assets as you see fit and you can also outline the specifics regarding how and when they receive those assets. We mentioned the living trust as an instrument to ensure the future care of a disabled loved one; this is because the living trust allows to you maintain control since you can be as specific (or not) as you choose when it comes to how the loved one may use the property.
Also, those who have concerns about the federal estate tax will often select a living trust since they can incorporate tax provisions, thereby preventing a large tax bill.
Finally, it’s important to understand that a living trust must be managed properly. This is an estate planning tool that will require attention, such as transferring assets. It can also be one of the more expensive options; however, the benefits far outweigh the additional costs.
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- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - September 23, 2023
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