Trust vs. Will

To determine whether a trust is preferable to a will for passing along your estate it is helpful to be aware of the differences between them. The comparison is between a living trust and a will since your both are created while you are alive. A testamentary trust is created after your death which can be done with a living trust or a will.

Another comparison is between a living will and a living trust. A living will outlines your choices about medical procedures you want or don’t want if your health becomes critical and does not address your estate.

Characteristics of Living Trusts vs. Last Will and Testament

Characteristic

Living Trust

Wills

Effort to create

  • Can be time consuming and very expensive
  • Usually need an expert
  • Most are simple and inexpensive
  • May be made by you

Upkeep

Update with life changes, ongoing management of trust, and consultations

Update with life changes

Names beneficiaries

Yes

Yes

Allows revisions and revocation

  • Revocable – Yes
  • Irrevocable – No

Yes

Avoids probate court

Yes

No

Protects assets from estate taxes

  • Revocable – No
  • Irrevocable – Yes in most states

No

Protects assets from creditors

Yes, if you are not the trustee

No

Requires a notary

Yes

No

Requires witnesses

No

Yes

Names an executor

No

Yes

Names a trustee

Yes

No

Requires witnesses

No

Yes

Names guardians for children

No

Yes

Can be contested by heirs

Although less likely can be done up to 5 years after your death

Usually limited to 30-120 days after your death 

Can distribute your assets to your beneficiaries both before and after your death

Yes

No

Automatically revokes spouse’s right to inherit or act as fiduciary after a divorce

No

Yes, in most states

When setting up a testamentary trust, you have the choice between a living trust and your will. The characteristics of a testamentary trust are similar to a living trust with a few differences depending on where it was created.

Advantages of a Trust Over a Will​

The ability to distribute your assets to beneficiaries both before your death if you become incompacitated as well as after your death.

A trust can be made the beneficiary of a life insurance policy or retirement account, allowing you to dictate how the money can be used by your beneficiaries.

If your estate is under a certain dollar threshold determined by your state, you can avoid probate court proceedings to verify the estate before distribution to the heirs. In that way they can get their inheritance more quickly rather than the weeks to several months it may take for a will which must go through probate court.

Assets will be protected from creditors if you are not the trustee/owner of the trust.

Disputes can be managed without probate court proceedings

Since the court is not involved, the trust settlement does not become part of the Public Record.

Avoiding the cost of a second-state probate proceeding where there is out-of-state property,  if under the monetary threshold of that state.

A trust is usually more detailed than a will and less likely to be successfully contested.

Although a living trust is more expensive to create and maintain than a will, it may be less expensive in the long run for larger estates by avoiding probate process and the reduction of some estate taxes.

Major Drawbacks of a Trust

The large amount of effort to set up and maintain the trust. This makes a trust impractical in states having an expedited or simplified probate process for estates under a certain dollar threshold (the amount varies by state).

The trust is not useful until it is funded, including any assignment of successor trustee. Although there is no lower limit to the funded amount, it is of little use to your heirs without significant assets and the trust will likely fail.

While you are the trustee you are legally the owner of the assets and they are not protected from creditors.

If your assets have not been transferred or if you die without funding the trust, your estate will be subject to probate and your assets will be subject to higher estate tax and available to creditors. The same would be true of any assets that have changed ownership or otherwise changed after you added them.

A trust contains inheritance instructions like a will, but It is more complicated.

It is important to know that to designate guardians for minor children and other dependents you need to add a pour-over will or have a Designation of Guardian for Minor Children form legal in some states. 

Like a last will and testament, failure to do so will result in the probate court assigning a guardian.

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