Last Will and Testament versus a Living Trust

Piggybacking off my last blog, many estate planning clients may find themselves considering the question of whether a Last Will and Testament is sufficient for their estate planning goals or whether they also need a living trust. First, it is necessary to state that a living trust is an addition to an estate plan and not in lieu of a Last Will and Testament. If one decides a living trust is needed for their estate planning, a pour-over Last Will and Testament is also part of the mix. A pour-over Will distributes all property which may end up passing through probate, if any, to the living trust.

When discussing Last Wills and living trust, I like to use the exercise of “how they are alike?” and “how they are different?” So, let’s start with how they are alike? Most notably, Wills and living trust are both used to distribute assets upon a person’s death. Additionally, Wills and living trust both allow you to appoint one or more individuals to be responsible for the process of collecting, managing, and distributing your assets upon your death.

So, how are they different? Wills and living trust are different in many more ways than they are alike although the two similarities are quite significant. First, a Will is not effective until one’s death and, therefore, requires no maintenance other than periodic review, updates, and revisions to the document itself, while a living trust generally becomes effective immediately and, when used properly, requires funding and at least some ongoing maintenance during the trust creator’s life, akin to a small business. A living trust, of course, also requires periodic review, updates, and revisions to the document itself like a Will.

Second, a Will is part of a bifurcated process of estate administration after a person’s death whereas a living trust, if used properly, can encompass a singular and seamless administration of a person’s entire estate. A Will only passes assets which pass through probate. In the modern era, much a person’s wealth passes outside of probate by rights of survivorship, beneficiary designations and other mechanisms. There is no one to manage property which passes via survivorship or direct beneficiary designations other than the beneficiaries making the claim or survivor. The use of a living trusts can make estate administration less bifurcated and more easily managed by a trustee of your choosing. Any assets transferred to a living trust bypass probate and are maintained as one unit controlled by the terms of the trust and the trustee appointed by the creator of the trust. Most assets can be transferred to a living trust with the most notable exception being qualified retirement accounts which must remain outside of the trust. Additionally, it is not always desired or wise to transfer some assets to a living trust. Often life insurance policies remain outside of the living trust. However, even with qualified retirement accounts and life insurance, the trust can be designated as the beneficiary. A trust can never die so when the trust is a beneficiary, there is no need to worry about updating your beneficiary designations through the various financial institutions which hold your accounts if a beneficiary within your trust predeceases you. Any updates can be made to the trust itself through a simple amendment. The update to the living trust will control the ultimate disposition of all accounts of which the trust is a beneficiary. The living trust as a beneficiary also allows a trustee to control the process by which your beneficiaries receive their portion of assets that pass outside of probate. The assets are first funneled into one big pile of trust assets and then distributed to the beneficiaries assuming there are no trust terms which apply as far as withholding trust assets. Speaking of which, a living trust, even if revocable during your life, can typically provide asset protection benefits to your beneficiaries through special needs and spend thrift provisions.

Third, probate of a Will is monitored by the Clerk of Court in the decedent’s county of residence and becomes part of the public record. In contrast, a living trust is private and unmonitored by anyone other than your chosen trustee. That said, the trustee is a fiduciary who has a legal duty to the beneficiaries and is generally required to provide an accounting to your beneficiaries. 

It should be clear here that a living trust offers many benefits that a Last Will does not. So, you may be thinking, why would one ever opt for only a Last Will? Well, primarily, because a living trust requires more of an investment as far as legal fees and attention to the details of estate planning and asset management whereas a Last Will is less costly and can be more transactional i.e. sign it and forget it. There are many things to consider when deciding whether to make this investment including the overall size of your estate, the complexity of the assets in your estate, the types and needs of your beneficiaries and your overall desire to plan and invest in the future.

An estate planning attorney at our office can help you talk through some of these considerations so you can make a wise decision as to whether a living trust is needed for your estate planning. Call our office to schedule an appointment.

Estate Planning & Admin