Deciding Between a Will and a Living Trust

If you care at all about what happens to your assets after you’re gone, then it’s a really good idea to have some kind of estate plan in place. That plan can be simple, or complicated, or somewhere in between: it just depends on how many assets you have, and how much control you want to maintain. 

Two of the most popular estate planning tools are a Will and a Living Trust. Both of these are estate planning documents that allow you to name beneficiaries for your assets so they’re distributed to your heirs after your death. But how do you determine which one might be better for you? 

What’s the difference between a Will and a Living Trust?

There are some obvious differences between the two.  A Will, for example, is normally where you to name guardians for your dependent children. Also, with a will, all assets that go through the Will are subject to a process known as probate.  This is where the Courts determine how your property will be distributed after you die. The process of probate is not fun – it can be expensive, time-consuming and out in the public eye, so it’s usually better to avoid it whenever you can. 

One fairly efficient way to keep your estate out of the probate process is to have a Living Trust, where assets like your properties, non-retirement accounts, bank accounts, your stocks, bonds, and so forth are transferred to the trust while you’re still alive.  Doing it this way generally allows your assets to be more quickly and easily distributed to your designated beneficiaries at your death by a representative of your choosing.  This person is called a successor trustee. 

In this way, a living trust avoids probate, along with the costs that go with it. And, unlike a Will, which is public record, your assets are distributed to your beneficiaries privately. A living trust can also add language that gives you a level of control over the money your beneficiaries will receive, which can be very important in some cases. 

One key point is that if you decide to have a living trust, you’ll still have a Will. It’s called a pour-over Will, and it handles anything that doesn’t have a named beneficiary or anything that’s not actually titled in the trust’s name – like, as I mentioned earlier, when you’re naming guardians for your dependent children.  

How do you choose between a Will and a Living Trust?

So a better question might be this: should you have a Will by itself, or a trust and pour-over Will combination?  That’s something you and your advisor should be talking about. 

Now – what about life insurance policies, retirement accounts and your IRAs?   

Well, IRAs and retirement accounts have beneficiary assignments on them, so by their very nature, if there is a named beneficiary they avoid probate and don’t need to be in a trust UNLESS you want to put controls on how your beneficiaries get the IRA money. Naming the trust as the beneficiary of an IRA is not ideal, because it can create certain flexibility issues for your beneficiaries; but if retaining control of your assets is important to you, then this might be a good option. 

As for life insurance policies, if you name the living trust as the beneficiary, the proceeds at your death go into the trust without probate, and then the net assets of the trust pass to the trust’s heirs, also without probate. But you should know that if you happen to die with a negative net worth and your debts are larger than the amount of money you have, the cash from the life insurance will first be used to pay off those debts. If, on the other hand, you just name an heir as the life insurance beneficiary instead of the trust, then the life insurance is not responsible for paying the debts of the trust.  Not a common situation, but it’s something to keep in mind. 

So whether your estate plan is simple or complicated, you need to know that you’ve got options. Helping to educate you on the choices that are available to you is just one of the many things we do for our clients every single day here at Lucia Capital Group.  How can we help you the most? Just give us a call!