A living trust is one of the most commonly used estate planning tools, but what distinguishes a trust from a will?
Rather than make a simple statement of what assets go to what parties, you fund the trust and choose a trustee to administer it according to your wishes. If you’re contemplating becoming the settlor (founder) of a living trust and want to know the advantages and disadvantages of this legal relationship, keep reading.
Pro 1: Flexibility
A living trust is the way to go if you’re seeking maximum flexibility.
Since you (and, later, your surviving trustees) will enforce the conditions of the trust, you can set aside funds that your descendants must use in a certain way. Commonly, settlors set aside funds that their beneficiaries can use for education, real estate purchases, or travel. You can also establish specific conditions that beneficiaries must meet to access the assets, like age or stage-of-life requirements. For example, you can allocate enough money to pay for a future grandchild’s first year of college or their first house after getting married. The trustee will release those funds to the grandchild once they enroll in college or after their wedding.
Depending on the type of trust you create, you may be able to change how your assets are managed while you are still alive. In a revocable living trust, you can submit amendments at any time. Irrevocable living trusts cannot change.
Pro 2: No Probate Necessary
Probate court can be a lengthy, bureaucratic, and overall painful experience for your descendants. Heated arguments between family members about who gets what only add to the stress.
However, if you have a living trust, the assets in the trust will not go through probate proceedings. Rather than an executor or court administering your estate, as they would with a will, your designated trustee handles the business of managing and distributing your assets to the beneficiaries you choose.
Pro 3: Privacy
The privacy advantages of a living trust stem from the fact that assets in the trust do not go through probate court proceedings. Probate is a very public process, and in addition to family members making challenges, so can creditors and con artists seeking to take pieces of your estate for themselves. Any asset distribution under a trust will happen quickly and be invisible to the public eye.
Con 1: Control
A trust is an independent entity. You can manage it while you are alive as both the settlor and the trustee, but despite the wishes and motivations you have recorded, the trustee you designate will control your estate after you die. It will ultimately be up to them to distribute your assets the way you intended. They will determine whether beneficiaries have met the conditions that make them eligible to receive assets for which you set conditions.
Con 2: Responsibility and Paperwork
You are responsible for funding the trust while you are alive. If you don’t put your assets into the trust, your beneficiaries will not have guaranteed access to them upon your death.
Further, remember that only the items in the trust bypass probate proceedings. As such, for best results, you may have to file or refile more paperwork than you would with a will. We advise our living trust clients to ensure their real estate, vehicles, accounts, and other financial products are in the name of the trust.
Con 3: Taxes
This disadvantage depends on the type of trust you use. With a revocable trust, you have more control while you are alive. However, the items you move into and out of the trust are still tied to your taxpayer ID number, and the federal and state government can still charge you income tax, and potentially estate tax, on them.
With irrevocable trusts, you completely transfer ownership of the items from you to the trust itself. There may be gift taxes relating to the transfer, but in the long term, they may not be subject to estate taxes if your estate exceeds the value threshold.
Contact an Estate Planning Attorney Today
At Arenson Law Group, PC, attorney James W. Radig and his team help clients leave the legacy they desire, whether through a trust or a will. We can answer your questions in a free consultation and help you determine which option is best for your situation. Call the Cedar Rapids estate planning lawyers of Arenson Law Group, PC today at (319) 363-8199 to get started.
No one wants to think about what it will be like to be at the end of life. It is not pleasant, nor easy to think about creating a will at any stage. However; there are distinct advantages to crafting a will with a lawyer. There are benefits of writing a will, and there may be disadvantages you should consider as well.
Pro: You can designate an executor.
The executor of your will is the person who will be enacting your wishes. This may be a relative who lives close to you, so they are able to travel to your residence and handle any physical transactions or property. However, it should also be someone that you know would honor your wishes and not be swayed from your directives by the opinions of others. If you have any controversial aspects in your will, make sure that your executor is strong enough to, and willing to, stick up for your final wishes in the face of those who may decide they should receive more of your property than you’d planned.
Pro: You can choose who you’d like to inherit your property.
Most of us are closer to some family members than others and would like to give our possessions to specific individuals. If you pass without a will, however, your property will be subject to state law. Under state law, those you intended to receive your property might get nothing, and those you did not intend to get anything might get the bulk of your assets.
Further, wills can formalize the relationships you have, and ensure that the law does not pass over anyone. For example, if you are not married, but have a long-term partner, your will can ensure that items pass to your partner. Conversely, if you’re in the midst of a divorce and pass before it is finalized, your will can ensure that your would-be ex-partner is not given any property you wouldn’t wish them to have.
Pro: You can designate a guardian for your children and provide for them.
If you pass while your children are still minors, they will need a guardian. This is a hugely important decision and one that you, the parent, should make. Not only can your will designate who the legal guardian of your children will be, it can also set up financial provisions for your kids through a separately created trust.
Pro: You can amend and revoke your will.
As your assets and relationships change throughout your life, so too can your will. While wills seem final, they are actually amendable documents up until your passing. There is no limit to the number of wills you may draw up in your lifetime.
Pro: You don’t have to be loaded to need a will.
To many, a will might be something that seems only necessary for those with high net worth. No matter your personal bottom line, as long as you have assets you wish to give to others or have children that require the appointment of a guardian, you need a will.
Con: Wills are relatively inflexible.
If you are comparing trusts and wills, note that wills are relatively inflexible. You could devise a trust to handle your assets during your lifetime with yourself as trustee, and designate a trustee for the balance who would take over upon your passing.
Con: It is possible that someone will challenge your will.
While it is possible someone will challenge your will, if you have gone through the necessary details and steps with a lawyer, even if a challenge is made, the challenger is unlikely to succeed.
If your assets are of a certain value they might need to go through probate. Probate is a long legal process of supervising the execution of your will. However, it is better to go through probate and make sure that your assets have gone where you intended than to leave it up to the state to determine who gets what.
Con: Your will is public record.
Finally, your will is public record. Once you have passed and the will is filed for probate, it will become public record. So, hypothetically, anyone could see the contents of your will.
Call Us Today
If you are considering setting up a will, call the experienced attorneys of Arenson Law Group, PC at (319) 363-8199 today. We will help you understand your assets and decide what is important for you to include in your will to provide for your loved ones. Further, we will ensure that the will is fine-tuned to be understood and carried out to the best of your executor’s ability.
Our wills attorneys lead with years of experience and compassion. Give us a call to get started today.
On yesterday’s episode of “Ask the Expert” with Jim Doyne, attorney Jim Radig from Arenson Law Group, PC, appeared on the program to discuss a number of issues connected to fiduciary duty, including how fiduciary duty applies in probate and estate planning circumstances and how it applies to agents serving under a power of attorney. Learn more about this topic by listening to the podcast in its entirety below.