Living Trust vs Will
Everyone understands that both a living trust and a will are legal documents, but what very few people understand are the subtle differences between the two legal forms. To begin with, let’s start with a simple comparison contrasting the major differences between a living trust and a will.
Living Trust and Will Comparison
A living trust is a trust created during a person’s lifetime to either save money on taxes or set up long term property management.
A will is a legal declaration by which a person, the testator, names one or more persons to manage his estate and provides for the transfer of his property at death.
Below are some lesser known differing factors between a living trust and a will.
A living trust has no effect whatsoever on any tax, whether income tax, gift tax or estate tax. The very same tax planning can and usually does take place in either a living trust or a will.
Private vs. Public
A living trust is private. A will must be filed with the Court; not so for a living trust.
Ease of Administration
The administration of a living trust is easier and more informal upon death than the probate of a will. This is often a deciding factor where an elderly couple is considering the burden upon the survivor.
It is very easy for someone who becomes a trustee after the death of the testator to steal from a living trust, whereas stealing from a probate estate is very difficult with the Court watching every move. Sometimes families where there is known dishonesty, known dispute, or no deeply trusted person to take over upon death, are better off under court protection.
A living trust can be a hassle during life. The trust, not you, owns everything; keeping records straight can be difficult for many people. A living trust requires that all substantial property henceforth, for as long as the trust exists, be taken in the ownership of the trust. Many people find this cumbersome.
A will is more expensive after death, while a living trust is more expensive during life. The biggest expense of a living trust is the initial one: transferring all assets into the trust in the first place.
Debts, Known and Unknown
Probate provides a way to cut off unknown debts more quickly, and with a court order. If any creditor does not come forward during the claims period (four months from filing a notice of death with the Court) he or she is barred forever from getting paid. Thus the assets pass to the heirs free and clear. A living trust provides no such quick protection from lurking creditors; in general, debts are cut off by the statute of limitations one year after death. Where there are or might be unknown debts a will might be more suitable protection for the survivors.
|Incapacitated during your lifetime.||A court supervised guardian or conservator will be appointed to handle your finances, payment of expenses, etc.||Same as "No Will."||You can name a successor trustee to step in to manage your assets, pay bills, etc., without court involvement.|
|Upon your death.||Controlled by state law which usually will require a probate proceeding to manage and account for assets, supervise sales and payment of debts, and make distributions to heirs as determined under state law.||Same as "No Will" except that you can name an Executor to manage estate process and direct distribution of your assets.||Because assets are under control of your successor trustee, he/she can manage the assets, pay bills and make distributions to beneficiaries without court involvement (i.e., no probate).|
|Time and Expenses Involved (Incapacitated)||Court costs, attorney's fees and delays are involved in a conservatorship or guardianship proceedings.||Same as "No Will."||Delay and costs are typically minimal.|
|Time and Expenses Involved (Death)||Probate expenses (court costs, attorney's and executor fees) often total 5% to 8% of the assets. Delay is often 1 to 2 years, depending on state law.||Same as "No Will."||No court costs; generally will have some legal fees (approximately 0.5% of estate value or less). Delays are minimal and usually depends on the type of assets involved in the trust.|
|Privacy||Part of the public record.||Same as "No Will."||Trusts are not made part of the public record and thus, maximum privacy is maintained.|
|Lifetime control||N/A||You can amend or revoke your Will at any time, thus controlling distributions, executors, etc.||You can amend or revoke your trust during your lifetime.|
|Contestability||Heirs or others may file adverse claims in probate.||Depending on state law, heirs or others may generally contest a will by objecting during the existing Probate process.||Trusts are more difficult to contest, and contestants must bring a separate court action to challenge the trust.|
|Out of state property||Normally, will require an "ancillary" probate in each state in which real property is held.||Same as "No Will."||Avoids probate and ancillary probates of all property in the trust.|