Will vs Living Trust: What’s the Difference?

Estate planning can be an uncomfortable process, but it’s a crucial piece in any financial plan, especially as we amass assets near retirement age. Two ways to put your wishes in legal standing are through wills or living trusts. Both provide a level of control over your well-being if you no longer can speak for yourself. However, wills and trusts vary greatly in the level of security they provide over a person’s medical wishes and wealth.  Here, we’ll explore the difference between a will versus a living trust so you can decide what’s right for your specific situation.

If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.

What is a Will?

A will, or “last will and testament”, is a legal document that gives directives on what to do with family or assets should the person authoring the will die or become incapacitated. A will is where a person will leave medical instructions, information about who should become the guardian of any minor children, and how assets and property will be distributed following death.

A will is one of the simplest ways to give instructions to our heirs, and it’s recommended that anyone with children or assets devises one. You can use a will to give instructions about repayment of debts, who inherits property, and how your funeral arrangement will be carried out. A will must be signed in front of witnesses, but it can be altered at any time during a person’s life.

Pros and Cons of Wills

A will is simple to create and requires no funding or expensive setup costs. It is something everyone should have, but be aware of the drawbacks of this document. A will might give you peace of mind that your final wishes will be followed, but it doesn’t mean your heirs will avoid the courts.

Since wills are a matter of public record, your assets and property must go through probate court to be distributed. This can create headaches for your loved ones. Additionally, a will can be challenged in court by unsatisfied heirs who may claim you were not in a proper state of mind during the creation of the will.

What is a Living Trust?

Like a will, a living trust provides instructions for our beneficiaries should we die or become incapacitated. But unlike a will, a living trust is a much sturdier legal document that allows us to provide detailed instructions on who gets what assets without involving the courts.

A living trust can do a few things a will cannot, such as:

  • Leave property to young children in certain instances
  • Keep your assets away from public record
  • Avoid messy probate court situations

Living trusts must be signed by a notary to become valid, and you can change or edit your wishes in a trust at any time.

Pros and Cons of Living Trusts

If you have considerable assets and will be exposed to estate taxes upon death, a living trust is a great way to make sure your final wishes are adhered to. While estate taxes are unavoidable, a living trust allows you to bypass probate court. Probate court can delay transfer of assets and wealth for months or even years. A living trust also protects your assets from court challenges and keeps your affairs private.

However, living trusts are complicated. A living trust is more expensive to set up than a will and it will be a completely worthless endeavor unless funded. In order to protect your assets, you must place them into the trust. That means any property, stocks, or other assets you wish to leave to your heirs must be owned by the trust. If you want to leave a home to your children, you’ll need to transfer ownership of the house from your name to the trust. While it helps avoid the courts, a living trust is time-consuming and pricey to organize. Additionally, a living trust cannot be used to appoint guardians of young children.

Who Needs a Will or Living Trust?

Pretty much everyone needs a will. If you have anything you want to leave to your children, whether its property, stocks, or simply your great grandmother’s wedding ring, a will is a must to make sure your wishes are followed. A will also allows you to provide some instructions regarding resuscitation and funeral arrangements. If you have simple assets and don’t expect to be subject to estate taxes, a will might be enough.

However, if you have multiple properties, diverse stock holdings, and expect to face challenges from an ex-spouse or upset heirs, a living trust should probably be added to your estate plan as well. Living trusts are expensive and must be funded to be useful, but they provide a level of privacy and security over your assets that a will cannot. If you put money and assets into your living trust, you can “trust” that they’ll be properly distributed when you’re gone without the need of probate court. You can have both a will and a living trust—in fact, anyone with a living trust should also have a will so they can appoint guardians for children and assign an executor to any assets not owned by the living trust.

Work With an Experienced Financial Advisor

We hope you understand the difference between a will and a living trust. For professional assistance, consult with a team member from Good Life Financial Advisors of Mount Pleasant today.