Comparing Living Trusts and Wills

Legal Tips and Resources

A vast number of people don’t pay enough attention to estate planning. Although many people take the time to create wills, fewer people will create trusts, and most don’t how trusts work. These are some reasons to consider putting your assets in a trust:

  • You have children
  • You have a disabled dependent
  • You want to grow your money
  • You want your heirs to avoid probate
  • You want to protect your privacy
  • You want final say over your assets

What is a Living Trust?

A living trust is a legal entity that holds an individual’s assets on behalf of a beneficiary and is managed by an appointed trustee. The person that establishes the trust, the grantor, can also serve as trustee. Living trusts can be revocable or irrevocable. A grantor can change or cancel a revocable trust at any time but relinquishes all rights to assets in an irrevocable trust.

Benefits of Living Trusts 

The most significant advantage of living trusts compared with wills is that they avoid probate after the grantor’s death. Probate is the process of authenticating wills in court and distributing assets. It can be very costly and time consuming for heirs and does not offer privacy as it is a matter of public record.

Unlike a will, after the grantor’s death, a living trust allows immediate distribution of assets based on the grantor’s specific instructions. For instance, for beneficiaries who are minors, the grantor can stipulate that trust funds must be used only for future education expenses, or house purchases.

Assets in revocable trusts earn interest. Living grantors can become beneficiaries, using funds from these interest-bearing trusts to cover ongoing healthcare expenses. Assets in irrevocable trusts can pay for continuing healthcare for disabled beneficiaries after a grantor’s death, and still allow the fund’s recipient to qualify for government assistance.

Disadvantages of Living Trusts

Although revocable living trusts earn substantial interest, those earnings are taxable grantors, who must pay higher taxes than those due from other interest-bearing accounts. Irrevocable trusts do not require tax payments, but they do require grantors to relinquish all assets to beneficiaries.

One of the most significant disadvantages of living trusts for people with minor children is that they don’t allow guardianship provisions. Only a will can establish guardianship.

Estate planning lawyers, like an estate attorney from Klenk Law, are well-versed in every aspect of trusts and wills. They are the best resource for securing you assets and your family’s future.