The estate you leave to your loved ones consists of real estate, personal property such as vehicles, and any other assets you might have. Unless you leave specific instructions on how you wish your estate to be distributed when you die, the state will decide who inherits your possessions. It’s unpleasant for many people to contemplate what will happen after their death, but unless you want the state to decide who gets what, you need to have a plan for your estate. Many people have difficulty choosing between a traditional will and a living trust. Here is a breakdown of what you need to know to decide which choice is best for you.
A last will and testament is the simplest way to establish your wishes regarding asset division. Wills are a flexible option for people with spouses, children, or other loved ones you want to include. They are also a good option for non-traditional living situations such as unmarried or same-sex couples. Because many states don’t recognize non-traditional unions, certain loved ones might be excluded if the state were to oversee the division of assets. A will allows the testator to state his or her wishes regarding care and custody of any minor children in the event of death. The downside of choosing a last will and testament over a living trust is that the estate is subject to federal taxes. Additionally, the will becomes a matter of public record. The will also have to go through probate, which makes it contestable.
A living trust allows the estate to avoid probate. It has many of the same advantages as a will, but the details of a living trust are private rather than public record. The only person with complete access to all facets of the living trust is the trustee. It allows the testator full control of the assets during his or her life, but then passes that authority on to a designated trustee upon his or her death. A living trust is a way to avoid estate taxes and also offers some tax advantages while the testator is alive.
While living trusts work well to pass property to heirs, the testator cannot stipulate orders for the care of any minor children or make concessions for his or her funeral. Another negative point about living trusts is that they are more expensive to establish. While the estate does avoid probate, this also means there is no way for a court to ensure that the assets of the estate are not abused or misappropriated by administrators. Ultimately, the decision on whether to go with a traditional will or a living trust is one which requires careful consideration. It is important to look at your family situation, personal wishes, and the size of the estate. Because both have advantages and disadvantages, it is not simply a matter of which one is better, but rather is a question of which is better for you.