Differences Between A Living Trust And A Will?

Reviewed by Nate Harris

Table of Contents

living trust vs will estate planning

When developing your estate plan, you must ensure you utilize all the available tools. Living trusts and wills are two of the most common tools used for estate planning.

Both allow you to transfer assets to friends and loved ones, but there are some major differences between them.

When it comes time to discuss your estate planning needs with your estate planning attorney, it is imperative to have a working knowledge of how each works and their differences.

Keep reading to learn the basics of wills and living trusts and how to decide exactly what you need.

What Is A Will?

A last will and testament is a legal document that determines the distribution of one’s assets and property upon death.

  • It can also contain your final wishes regarding burial and funeral services.
  • The will should also list your assets and debts as well as any specific devices, such as a family heirloom or collectible.

Upon your death, the will must go through the probate process. This means that the probate court must approve all distributions.

The legal process known as probate can be lengthy and expensive. It also becomes a public record, which means that anyone who is interested could discover the details of your estate.

  • A will also allow you to name guardians for your minor children. This is an important estate planning tool that everyone should have regardless of the value of your estate.

*Without a will, your property will be distributed according to the intestate succession laws in your state.

This may or may not result in the distribution that you would want. Mainly, if you wish to disinherit a child or spouse, a will can accomplish this in most cases.

However, if you die without a will, the law states exactly who will get your belongings. The only exceptions are assets with named beneficiaries, such as life insurance policies, IRAs, 401(k)’s, and some other bank accounts.

  • Wills may also be subject to will contests by potential heirs.

For example, a son or daughter may challenge the will because they believe they were not granted a proper inheritance.

This can tie up the entire estate in court for years and prevent anyone from receiving their inheritance until the challenge is resolved or settled.

   KEY TAKEAWAYS

  • Wills and Living Trusts are two documents that are an essential part of estate planning.
  • A will can contain final wishes, lists of assets, and debt and be used to name guardians for minor children. 
  • A living trust allows a trustee to manage the trust’s assets for the benefit of the beneficiaries and, when established correctly, can bypass the probate process upon the grantor’s death.

What Is A Living Trust?

A living trust is a trust that is created during the lifetime of the grantor or the person making the trust.

The trust documents will name a trustee and beneficiaries. The trustee has a fiduciary duty to the beneficiaries and must manage and maintain the assets in the trust to benefit the beneficiaries.

In contrast to a living trust, a testamentary trust is created after the grantor’s death through provisions in the will.

You might be wondering, “What is a trust?”

A trust is simply a legal entity that allows a trustee to manage assets for the benefit of one or more beneficiaries. The IRS also provides information on what meets the definition of a trust. There are two main types of trusts: revocable and irrevocable trusts.

 
 

Revocable Trust

revocable living trust may be changed, amended, or even revoked at any time during your life.

You maintain complete control of the property in the trust. A person will typically name himself as trustee during his lifetime, and the trust documents will appoint a successor trustee to assume control at the time of your death.

A critical benefit of a revocable living trust is that it allows you to pass assets to their beneficiary designations without going through the probate process.

This typically saves time and money and avoids potential challenges to a will.

In addition, trusts are private documents, as they do not become public records. This allows you to maintain privacy during the settlement of your estate.

A trust also protects you from needing a conservatorship should you become incapacitated. The trust agreement continues to operate even if you reach incapacity.

One thing that a trust does not allow you to do is name a guardian for young children. If you have minor children, having a will is an absolute must!

 

Irrevocable Trust

The benefits and purpose of an irrevocable trust are quite similar to a revocable trust. However, an irrevocable trust cannot be easily changed or revoked.

In fact, by the very nature of it, an irrevocable trust cannot be changed once it is formed. The only exception is when all beneficiaries agree to the change.

Irrevocable trusts offer some additional benefits over revocable trusts. They can provide tax advantages; however, they have a few drawbacks.

You lose control and ownership once you place property into an irrevocable trust. The trust wholly owns that property, and the trust property is managed by the trustee according to the trust documents.

Must read articles related to Wills & Trusts

How To Create A Will Or Trust

living will vs living trust

When reviewing your estate planning options, you will likely decide to create a will, a trust, or maybe even both!

Creating these documents is not extremely difficult, although they do require some expertise that the average person usually does not possess. The rules vary by state, but the process for creating a will or trust is generally about the same across the board.

Here is what to expect when making a will or trust.

 

Establishing a Will

  • First, you should make sure the will lists your assets and debts.
  • You will want to ensure that you specifically note who should receive your assets in the will.
  • Regarding distributions, you can list specific items in the will and which family members or friends will receive them.
  • Once you have covered all the specific items, you can list a person to receive the remainder of your estate.
  • Also, if you have minor children, you should name a guardian and an alternate guardian for those children.
  • Be sure to name an executor and alternate executor for your estate.
  • Your will should be signed, and in some states, it should be notarized and include specific language to make it self-proving.

 

Establishing a Trust

  • When establishing a trust, the document should name a trustee and beneficiaries.
  • It can also direct specifically how the assets will be managed and distributed.
  • Once the trust documents are executed, you must fund the trust. That means transferring ownership of the assets to the trust instead of personal ownership.

With either a will or a trust, particular rules must be met. You should likely consult an estate planning attorney for help drafting the documents to ensure they comply with your area’s local laws.

TIP

Many people find having a Living Trust and a Will beneficial as part of their estate plan strategy.

Key Differences Between Wills And Trusts

Wills and trusts can both be used to pass property to heirs or beneficiaries; however, there are distinct differences between these two documents.

  • A will is created during your lifetime, but it does not become effective until death.
  • A trust becomes effective immediately upon the creation of the trust. Living trusts are created during your lifetime, while testamentary trusts are not created until after your death.
  • Trusts offer significant tax advantages that are not available with a simple will.
  • To distribute your property with a will, your estate must go through probate. This means that your estate will be subject to estate taxes and become a public record.
  • A trust allows you to pass property outside of the probate process. This can result in significant tax savings and enable you to maintain privacy for your estate.

If you have minor children, then having a will is imperative.

  • You can use a will to name guardians for your minor children in the event of your death. However, a trust cannot be used for this purpose.
  • A trust remains in effect should you become incapacitated. Without a trust or durable power of attorney, the court must appoint a conservator to handle your affairs during incapacity. Remember that a will only takes effect after your death, so none of its provisions would apply during incapacity.

Here are some more quick comparisons between a living trust and a will in an easy-to-read format.

Features Living Trust Will
Timing of Effectiveness
Upon Signing
At Death
Can be Contested
Not Generally
Yes
Subject to Estate Taxes
Not Generally
Yes
Modifications
Revocable – Yes, at any time during lifetime. Irrevocable – No, only if agreed by all beneficiaries.
Yes, at any time during lifetime.
Appointment of Guardians
No
Yes

Average Cost Of Wills And Trusts

Wills and trusts are usually not cheap, but ensuring that the appropriate documents are in place is essential.

The cost of these items is usually proportionate to the size of your estate and the complexity of your goals.

  • If you have a small estate, you might be able to get a simple will for as little as $250.
  • Simple trust documents are typically a little more expensive and probably start around $500.
  • A detailed will could cost you upwards of $5,000 for a large estate that is very complex.
  • Similarly, highly complex trust documents can cost tens of thousands of dollars.

Once a will has been executed, there are no additional costs until the probate process begins at your death.

However, trusts have ongoing costs, mainly if you have hired a third-party trustee. The annual fees for managing a trust can range from a few hundred dollars to several thousand dollars, again depending on the value and complexity of the assets.

The Bottom Line

Living trusts and wills are two separate and distinct legal documents that can be used to accomplish similar goals.

However, each has some unique features that need to be considered. Many people need both of these documents to form a complete estate plan.

You should consult an estate planning attorney experienced in trusts and estates to review your assets and goals and determine what suits your situation.

Frequently Asked Questions

Which is better a will or a living trust?

When evaluating a living trust versus a will, it is impossible to say that one document is better than the other.

Each is unique and provides certain benefits that the other does not offer.

  • For example, a will can appoint a guardian for minor children, while a trust cannot.
  • On the other hand, a trust offers certain tax advantages for the distribution of property that a will cannot.

An experienced attorney can help guide you to the best choice for your specific situation. In many cases, people end up needing both of these documents to adequately handle their estate planning needs.

​Does a will override a living trust?

No, a will does not override a living trust. Once you place items into the trust, the trust owns those assets.

They are no longer part of your estate. Therefore, any assets in the trust are not governed by the terms of your will.

A will can only distribute items that were owned by the decedent, not items that are owned by a trust created by the decedent during his or her lifetime.

Why have a living trust instead of a will?

A living trust offers some advantages over a traditional will. First, a living trust allows you to avoid the probate process, and it also provides additional privacy.

The terms of the trust will not become public records, and the beneficiaries will be able to receive their inheritance faster.

Living trusts can also help avoid challenges to a will and provide some major tax advantages.

When done properly, a living trust can accomplish almost everything that can be accomplished with a will while still offering the advantages mentioned above.

What are the disadvantages of a living trust?

One of the most significant disadvantages of a living trust is that you must relinquish ownership of your assets.

Once the assets are placed in the trust, they are owned by the trust, not you. Depending on how the trust is established, you might still be responsible for paying income taxes on assets within the trust from your account.

In addition, if you have minor children, you cannot name a guardian for those children in the event of your death using a living trust.

Finally, another disadvantage can be the cost of a living trust. Establishing and maintaining a trust can be expensive, so you should consider that before creating one.

How do I find a Social Security office near me?

You can find a Social Security Administration office near you by using our SSA office locator and searching for your closest location.

Share the Post:

View our Library of Resources

Find the topics that interest you, by searching all our articles, resources and videos.

social security benefits quick guide

FREE eBook Social Security Benefits: Quick Guide

Reading this simple 20 page book will provide you with a foundational knowledge regarding the different Social Security benefits such as...Survivor Benefits, Impact of Claiming Social Security Early and so much more!