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Estate Planning Essentials: Living Trusts vs. Wills

All Estate Planning

Planning for the future is essential, especially as we age. Whether it is your wish to leave a legacy or not, making decisions about how your assets will be managed and distributed after you pass away is crucial. Two primary tools for this are living trusts and wills. Here’s a comparison to help you decide which might be best for you and whether you might need both.

Living Trusts

What is it?

A living trust is a legal document that allows you to place your assets into a trust while you’re still alive. You manage the trust as the trustee, and after your death, the trust's assets are transferred to your beneficiaries according to your instructions, bypassing probate.

Advantages:

  1. Avoids Probate: Assets in a living trust are transferred directly to beneficiaries without going through the probate process, saving time and legal fees.
  2. Privacy: Unlike wills, which become public records during probate, living trusts remain private. This is increasingly important for avoiding identity theft, as personal information is more accessible online now than it was 20 years ago.
  3. Control: You can specify how and when your assets are distributed, providing detailed instructions that a will might not accommodate.
  4. Incapacity Planning: If you become incapacitated, a successor trustee can manage the trust assets without court intervention.

Disadvantages:

  1. Complexity and Cost: Creating a living trust is more complex and can be more expensive initially due to legal fees.
  2. Funding the Trust: You must transfer assets into the trust, which can be time-consuming and may require ongoing management.

Wills

What is it?

A will is a document where you state how your assets should be distributed after your death. It also allows you to name guardians for minor children and an executor to manage your estate through the probate process.

Advantages:

  1. Simplicity and Cost: Wills are generally simpler and less expensive to create than living trusts.
  2. Guardianship: A will is the only document where you can name a guardian for your minor children.
  3. Flexibility: You can easily update a will as your circumstances change.

Disadvantages:

  1. Probate: Wills must go through the probate process, which can be time-consuming and expensive.
  2. Public Record: Wills become public records once they enter probate, meaning the details of your estate can be accessed by anyone.
  3. Limited Control Over Distributions: Wills don’t allow for the same level of detailed instructions for asset distribution as living trusts.

Do You Need Both a Living Trust and a Will?

Even if you have a living trust as your primary estate planning document, you still need a will. This type of will is called a "pour-over will," which serves several key purposes:

  • Catches Any Unfunded Assets: It ensures any assets not placed into your trust before your death are transferred into the trust afterward.
  • Names Guardians: It allows you to name guardians for minor children or dependents.
  • Provides a Backup Plan: It acts as a safety net to cover any assets that might not have been included in the living trust.

Supplementary Estate Planning Documents

A comprehensive estate plan for individuals over 55 should include more than just a living trust and a will. Consider these additional documents:

  1. Durable Power of Attorney: Allows someone you trust to make financial and legal decisions on your behalf if you become incapacitated.
  2. Healthcare Proxy (Medical Power of Attorney): Designates someone to make medical decisions for you if you cannot.
  3. Living Will: Outlines your wishes for medical treatment in case you are unable to communicate them yourself.
  4. Beneficiary Designations: Ensure that retirement accounts, life insurance policies, and other financial accounts have updated beneficiary designations.
  5. Letter of Intent: Provides instructions for your executor or trustees about your wishes, which may include funeral arrangements and other personal requests.

Conclusion

For women over 55, having a solid estate plan is crucial. A living trust offers privacy, control, and a way to avoid probate, making it an attractive option for many. Additionally, the privacy provided by a living trust can help prevent identity theft, a growing concern in our digital age. However, wills are simpler, less expensive, and necessary for naming guardians and catching any assets not included in the trust. Using both a living trust and a pour-over will can provide a comprehensive approach to estate planning. Including additional documents like a durable power of attorney and healthcare proxy will ensure all your bases are covered, providing peace of mind for you and your loved ones. 

Regardless of which option you think may be best, it is important to seek proper legal guidance from an estate planning attorney to assist in fully evaluating your alternatives and that your estate plan effectively addresses your wishes.


This is not an exhaustive list of considerations. Neither RFG Advisory nor Blake Wealth Management provide tax, legal or accounting advice. The information herein is general in nature and should not be considered legal or tax advice. Please consult an attorney or tax professional regarding your specific situation.