If your retirement days are just around the corner, you are probably actively daydreaming about the hobbies you will take up once your retirement plan is set into motion. Of course, you have deserved every minute of it as a conscientious worker and taxpayer. However, there are important issues you ought to settle before you finally relax and fully enjoy your golden years. Taking care of the future of your assets is something you should devote your attention to just as much you might be thinking about your retirement scheme. For this reason, we are going to talk about the oft-misunderstood difference between wills and living trust. So, in the battle between will vs. trust, what should you choose?
As much as making this decision might seem premature, it is best if you devise an estate plan early on. You probably want your estate to be split up according to your wishes after you pass away. Therefore, to create an adequate strategy, you need to consider your circumstances. Let’s take a look at what wills and living trusts might offer to you.
What is a Living Trust?
For some, a revocable living trust is a great estate strategy, but completely unnecessary for others. Essentially, it is a document that puts the majority of your assets into a trust. You can control the assets in your trust normally during your lifetime. This means that you can live in your home and use the money any way you want.
After you pass away, a trustee you appoint will be in charge of managing the trust. In other words, the trustee will distribute your assets to the beneficiaries you have chosen, at times you find most appropriate.
What are the benefits of choosing a living trust?
Choosing a living trust as a strategy to manage your assets allows you to avoid probate costs. Because you have assigned a trustee, there is no need to go through a court procedure, unlike a will that has to be validated by an official court of law.
However, there are other benefits of opting for a living trust. The terms you set up do not become part of the public record, which means your family affairs stay within the family. Also, a trust is significantly more challenging to contest compared to a will.
Furthermore, a trust gives you a greater amount of freedom to distribute your assets as you find most appropriate. You can either have your assets distributed immediately after you pass away or at dates in the future you determine yourself.
What are the shortcomings of choosing a living trust?
The amount of flexibility and control a living trust offers might sway you to opt for this strategy. However, there are certain drawbacks you should consider before you make your final decision. Namely, a trust allows you to avoid probate costs, but not estate taxes.
Furthermore, a trust can only manage those assets that you place directly into it. This means that if you do not transfer the ownership of your assets correctly, they will not be included in the trust. In contrast, a will transfers your assets to the beneficiaries automatically. This is something you can easily overlook if you are not explicitly informed, which is one of the problems people experience when they devise their retirement plans at the same time as their estate plans.
Finally, when finalizing the living trust forms, make sure you keep in mind that the trust is not active until you fund it. So, you have to finance the setting up and managing of the trust before and after your death. In addition, the trust will not be able to control your assets until you assign legal ownership of everything that can be considered your asset to the name of the trust. If you fail to do so, your house, car, bank accounts, and much more will not be included in the trust.
What are the benefits of choosing wills as opposed to living trusts?
The major benefit of opting for a will as opposed to a trust is that wills are much easier to draw up. They also do not require any funding during your lifetime. Once you write up the document, that’s it. There are no additional duties and obligations that you have to worry about. Unless you go through a divorce or experience some other significant change in your life, you do not have to revise your will.
You also do not have to deal with the legal processes of changing ownership of your assets. You only pay for the fee for establishing a will, and that is the only cost that you have to settle during your lifetime.
Just to illustrate, this means that if you decide to relocate to a new home before or after you retire, you do not have to deal with transferring the ownership of your new property to the trust. This makes a will a better option for people who do not want to manage the various legal fees associated with this. Since many people are leaving cities in droves, a will is a significantly simpler solution since it automatically relieves them of handling such matters if they decide to move to a smaller city or the countryside.
What are the downsides of opting for a will?
However, as simple as they are, wills do not guarantee the same level of protection you can rely on when you establish a trust.
First of all, if you develop a mental or physical illness, you might not be able to manage your finances. This means you might be hindered from making changes to your will when the need arises. Also, as we have mentioned, your assets are distributed to the beneficiaries immediately after your death. So, you are not able to choose the time when the inheritance should be distributed. Furthermore, if you have assets in more than one state, the will must go through probate proceedings in each state for the assets to be distributed. You can avoid this by opting for a trust instead.
All in all, we hope this short will vs. trust debate has helped you come closer to reaching a decision that works for you. As you can see, there is no clear right or wrong answer to this question. And if you cannot make a decision, you can opt for both solutions if you have second thoughts about each option. In this way, anything that might not be included in the trust will be dealt with through your will.