There are many estate planning options, and it can be challenging to decide which one is right for you. Two of the most common tools are trusts and wills. They both have their pros and cons, so let’s take a look at each one in more detail.
What is a Living Trust?
A living trust is an arrangement in which you transfer your home, other property, and assets to the ownership of a trust you set up as a separate entity from yourself. You assign a trustee who manages it for your benefit. Creating a Living Trust can be done instead of writing a will after you die.
Benefits of a Living Trust vs a Will
Care for Minor Children
Trusts are an excellent way to ensure that your children will be well cared for when you pass on. A trust allows you or another adult you choose to remain in charge of managing funds belonging to a minor beneficiary until they become of age. You can give your child’s future security by ensuring all assets meant for them are used exclusively for their benefit by someone you trust, even if you pass away unexpectedly.
Make Your Trust a Beneficiary
You can also make a trust the beneficiary of your life insurance policies or retirement accounts. These don’t pass through a will. When you name your trust as the beneficiary, your trustee can also manage the funds from these policies.
Prevent Wasteful Living of Beneficiaries
You can also prevent an adult child from wasting money before they know how to spend it wisely. Giving inheritance distributions over time can be vital if you have a child with gambling, spending, or drug problems —your trust can provide distributions in increments rather than all at once.
Avoid Probate Court
Even if you have assets solely in your name, a living trust can be a beneficial choice. When the time comes for passing on your assets, they will go through an easy process with all relevant paperwork managed by your trustee. Opening and funding a living trust means that your estate and family can avoid probate court costs and attorney fees for estate settlement disputes.
Probate court can be a complex event for an estate executor. They must make multiple filings with the clerk of court with exact accountings for taxes, estate inventories, distributions, and more. With a large estate, probate can last for years. However, with a trust, the trustee distributes everything without court interference or oversight according to your trust’s terms. The trustee has a fiduciary legal duty to act in the beneficiaries’ best interest.
Second or Later Marriages
For those in second or later marriages, wills can become tricky with several children, step-children, and grandkids. A revocable trust can solve problems related to multiple heirs from different parents and avoid the mess of future will contestations.
Keep Your Estate Matters Private
When you die with a will, the probate court makes everything public record, including inheritance amounts, creditors, assets, inventory of your estate, etc. A trust can alleviate those concerns for the more private families who don’t want their personal business to become public. In addition, keeping matters private can help prevent family disputes based on jealousy or wanting more inheritance.
Save On Taxes
Depending on their incomes, married couples can also use a trust to avoid unnecessary tax liability. In North Carolina, a trust can help you save on estate taxes.
What is a Will?
A will is a legal document that declares your wishes for asset distribution after you die. It must be in writing and signed by two witnesses. A will goes into effect after you die.
(A living trust goes into effect as soon as you fund it. You may manage your living will as your own trustee until you pass away. At that point, your named successor trustee distributes your assets to beneficiaries and manages your trust.)
Benefits of a Will (vs Living Trust)
If you are young and don’t own much or have any children, a will may be the best solution for your circumstances. In NC, if you are single and your estate is worth less than $20,000, you may elect to avoid probate court with a simple application. As a couple, you can avoid probate if your estate is worth less than $30,000.
A will is much simpler to create than a trust and tends to be less expensive. There are also no ongoing fees like there can be with a trust.
What’s The Difference?
In summary: a living trust is more flexible and can offer more benefits than a will, but may also be more expensive to set up. A will may be better if you want a simple and less costly solution and don’t need the extra flexibility a trust provides. Speak with an estate planning attorney to see what would work best for your unique situation.
A lot goes into determining whether a will or a living trust is best for each situation- so before choosing between these two powerful legal contracts consult an experienced lawyer.
We Can Help
As always, if you have any questions or concerns, please do not hesitate to reach out! Our estate planning attorneys at Hopler, Wilms, and Hanna are here to help in whatever way we can.