Although both a will and a living trust allow an individual to name beneficiaries who may receive assets, funds, or shares of an estate upon the fulfillment of certain conditions, they are different types of documents. In the case of a will, that condition is the estate-holder’s death. Living trusts, on the other hand, are a bit more complex and allow an individual more flexibility in settling arrangements and affairs.
In general, a will is a legally-binding document that typically details the varied components of your estate, including physical assets and financial holdings. When you write a will, the intent is usually very straightforward:
- To provide a list of your beneficiaries or heirs
- To state who among your heirs gets which assets
- To include necessary stipulations and conditions such as guardianships or rights of asset usage
Every state has its own laws for what makes a valid will. In California, your will must be signed and accompanied by the signatures of at least two impartial witnesses who are not named as beneficiaries. Different states might require a notary stamp or seal. Ultimately, a will’s conditions are only legally binding upon your death.
A Living Trust
A living trust is created when an individual is still alive. The primary purpose of a living trust is avoiding the probate proceedings which accompany will readings and estate disbursements.
When you establish a living trust, you may:
- Transfer property and assets such as a house, a car, or money into it immediately
- Set specific conditions on how trust assets can be used and disbursed—for instance, you may decide to withhold funds from your children until they reach a certain age
Generally, there are two types of living trusts:
- Revocable trusts
- Irrevocable trusts
When you establish a revocable living trust, you retain the ability to alter the trust’s conditions, funds, and beneficiaries at will. Irrevocable trusts, on the other hand, take effect immediately and cannot easily be challenged or changed.
Key Differences Between Wills and Living Trusts
Compared to living trusts, wills are easy and relatively inexpensive to create. While you should always consult an attorney to ensure you’re complying with state law, drafting a will is a straightforward way to appoint a guardian for your children and determine who gets what after your death.
You might only need to draft a will if you:
- Don’t own a home
- Have relatively few assets
- Don’t care if your heirs settle their affairs in court
Living trusts are ideal for people who:
- Own a home
- Hold many assets or accounts
- Want to set complex conditions on how inheritances can be used and by whom
- Desire more control over their assets while they’re still alive
- Wish to spare their heirs from probate proceedings
Living trusts have a significant advantage over wills: by placing assets into a trust while you’re still alive, your beneficiaries are able to avoid probate proceedings, thereby sparing them significant time, money, and energy.
Likewise, being able to set conditions on how a trust’s assets may be used or disbursed provides more room to anticipate and accommodate estate taxes or to set rules for transferring ownership of a company or privately held business.
Ultimately, your decision to create a will or establish a living trust is a personal one and highly dependent on the nature of your assets and your individual circumstances. However, most people who are serious about ensuring the integrity of their estates will write a will and establish a living trust. The two arrangements can very effectively complement one another—a will might name a guardian for your children, while a living trust ensures their inheritance is used responsibly.
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