About this site
Congratulations on taking the first step in estate planning: research. This website's purpose is to simplify the concepts of living trusts and wills so you can effectively generate questions for an attorney. If you choose not to use an attorney, this site will try to help you avoid common mistakes that arise when an attorney is not involved. This site does not provide legal advice nor tax advice.Living trust and will differences
Living trusts don't replace wills. Living trusts are sometimes included with wills and power of attorney documents. Trusts are essentially boxes for holding assets during and/or after your lifetime.
- Effective date: A living trust takes effect while you are alive. A will takes effect after you pass.
- Incapacitations: Living trusts can make management of an estate during an incapacitation easier than power of attorneys alone. If an asset is in a trust, financial institutions such as banks must recognize your successor trustees during an incapacitation. Institutions are not required to accept powers of attorneys.
- Privacy: Wills are made public during the probate process. Living trusts are private documents and in many states are not recorded.
- Probate: Probate is not a tax but a court process to validate a will and ensure its instructions are followed during the transition of an estate. Probate's cost and length differ in each state. Neither wills nor testamentary trusts help assets avoid probate. Assets with listed beneficiaries (life insurance, IRA's, beneficiary deeds, etc) and assets in a living trust avoid probate.
- Guardians: Wills name guardians for children. Living trusts do not name guardians. However, trusts can pre-appoint someone different than the guardian to manage a beneficiary's assets until they are older and fiscally responsible.
- Holding assets: Living trusts can hold assets after a person has passed. A will alone can not hold assets but a will can create a testamentary trust to hold assets. Common reasons for holding assets include: managing assets for young beneficiaries, protecting special needs beneficiaries receiving disability income, maintaining assets for a spouse in a blended family, and providing care for pets.
- Contesting: If someone contests the estate, living trusts are often better equipped to handle the contest.
- Taxes: Living trusts can minimize estate taxes for married couples by doubling estate tax exemptions. A will by itself can not double exemptions (learn why). There is a federal estate tax and some states have their own estate tax. Estates transferring less than $3.5M in 2009 are not subject to an federal estate tax (a possibility exists of it dropping to $1M in 2011). Amounts over $3.5M are taxed. In most states, if you have less than one million dollars there is little worry of estate taxes. Find out if your state has a state estate tax
Living trust and will misconceptions
Here are quick basics to understand:- Wills do not prevent probate. The purpose of probate is to validate the will, ensure its instructions are followed and allow creditors time to make claims against the estate.
- Living trusts do not take away control of assets. Naming yourself trustor and trustee gives you complete control of all trust matters.
- Living trusts do not protect assets from lawsuits while you are living.
- Living trusts do not protect assets from creditors once you pass.
- Living trusts do not provide income tax benefits while you are living and in some cases may slighty increase income taxes on your estate after you pass.
- Living trusts generally do not protect from Medicaid spend-down.
Which is best for you?
There are many factors which could shape the direction you take, including but not limited to:- What you state you live in (probate and estate taxes)
- The value of your estate
- The type of assets you own
- The ages and needs of your beneficiaries
- The likelihood of your estate being contested
- Your trust in potential nominees to manage your estate without a court's oversight
- How diligent you will remain regarding placing assets in your trust
