What’s the difference between Living Trust Vs Will is a common question that many ask when they are in the midst of preparing their Wills. Both Living Trust and a Will are documents to give instructions how to handle your affairs when you pass on.
Trusts and Wills have a number of similarities thus creating confusion. A trust doesn’t replace your Will. Often they are used together with a Will.
Other similarities are, both allows you to:-
- appoint people to manage your estate after you pass on
- name beneficiaries of your estate
A living trust is a common type used by families without large estate taxes considerations.
The differences between a trust and a Will are:-
- Effective date – a Will takes effect upon your demise, while a trust take effect upon creation date
- Assets held in a living trust do not go through the probate process. This avoids a potentially lengthy probate process that can take months or even years
- A Will allows you to appoint guardians for minor children whereas you can’t do that in a Living Trust
A living trust is like a vault, where you transfer assets in and have a measure of control over the assets, even when you are no longer around.
While most people know the purpose of a Will, many have the impression that a Living Trust is only for people who are wealthy. Although the wealthy do create Living Trust, it does not mean only the rich can do so. This is a common misconception.
Other advantages of a Living Trust over a Will includes:-
- provision of a successor upon your death or incapacity without court intervention,
- prevents financial affairs from becoming a matter of public record
- allows a measure of control over your assets even after you are gone
- estate tax advantages
The disadvantages of a Living Trust compared to a Will:-
- more expensive to set up than a Will
- needs to be actively managed after it is created
- needs to be funded i.e. assets must be transferred into the trust
While you might be thinking of either to create a Living Trust or to write a Will, remember that a Living Trust doesn’t replace a Will. They complement one another. Even if a substantial portion of your assets are held in the trust, you will still need a Will.
With a proper residual clause, your Will acts as back-up for property that you have not transferred to your living trust. For example, if a relative suddenly pass away and leave you a property, the Will can encompass such assets as well.