Estate planning is all about deciding what happens to your assets when you pass. Through estate planning, you choose who your beneficiaries and trustees are. Wills and living trusts are the two types of documents that outline who will receive what (and when). While both a living trust and will are important estate planning tools, there are key differences between them. Understanding these differences is important when choosing the right documentation for you. Let’s dive into when and how you would use a living trust versus a will. 

Key takeaways:

  • Wills and living trusts are both legal estate planning documents that record what you want to do with your assets after you pass. 

  • The main difference between a living trust and a will is when they go into effect. With a living trust, you put your assets into a trust and appoint a trustee to manage your assets while you’re alive in case you can’t do it yourself. With a will, your wishes for what you want to do with your assets go into effect after you pass.

What is a living trust vs will?

The main difference between a living trust and a will is when they go into effect. A will takes effect after you pass—your beneficiaries will receive the assets you leave them after you pass. A living trust, on the other hand, works while you’re alive. An appointed trustee can manage and distribute your assets in the event that you can’t. In some situations, like if you have a bigger estate and young children, it may make sense to have both.

What is a living trust?

A living trust is a legal document that outlines how you want to manage your belongings while you’re still alive. You’ll put your assets into a trust, which you can manage until you are unable to. You’ll also choose a trustee who will carry out your wishes if you develop cognitive impairments or are otherwise unable to manage the trust. 

Pros of a living trust

  • Unlike a will, you don’t have to go through a probate. A probate is a court-supervised, legal process that takes place after a person passes. During the probate process, the court reviews your will and makes sure that all beneficiaries receive assets accordingly. Probates often involve court fees and are time-consuming, which is why people may opt for a living trust instead.

  • Living trusts are more private. Unlike wills, trust agreements are usually not public and details around what beneficiaries receive are confidential. 

  • You can manage your assets while you’re alive. In case you can’t make decisions yourself, living trusts allow you to appoint a trustee to manage your assets if you are unable to do so yourself.

  • You can avoid reductions to your estate with an irrevocable living trust. An irrevocable living trust is a living trust that you can’t change. Irrevocable trusts protect your assets from creditors and can reduce estate taxes, but they decrease flexibility. This means you’ll have less control over your belongings in the event of a major life event (like divorce).

Cons of a living trust

  • Living trusts are more complex than wills. They involve more paperwork and usually have higher initial costs. They can be more expensive to write up.

  • Revocable living trusts require ongoing updates. This is also true for wills, but updating living trusts costs more. This can get expensive if you need to update them for multiple marriages, births, or other significant life events.

  • Living trusts don’t account for guardianship. A living trust doesn’t allow you to choose a guardian for your children.

What is a will?

You may be more familiar with the concept of a will, also called a last will and testament. A will is a legally binding document that records where you want your assets to go and chooses a guardian for your children in case of your passing. Unlike with a living trust, there is no one identified to manage your assets other than yourself while you’re alive. Your will will only go into effect if you pass away.

Pros of a will

  • Wills are more simple than living trusts. They are more straightforward and generally require less paperwork.

  • Wills are better for people with young children. With a will, you can choose a guardian for your children if they are minors. You can’t do this with a living trust.

  • Easily make changes with a will. Wills are more flexible, which makes it easier to make changes.

Cons of a will

  • Your beneficiaries and other parties will need to go through a probate process to receive assets. The probate process is required for a will, and it can delay your beneficiaries’ receipt of their belongings. Going through a probate makes the process less private too. Wills are public documents, and therefore your beneficiaries and the general public will know the total of your assets and how they are divided.

  • Wills don’t avoid estate taxes. There’s a federal estate tax you need to pay for assets above $13.61 million. 

How to choose between a living trust and will

Choosing between a living trust and a will isn’t always easy. There’s a lot of things you need to think about, like your family, finances, health, belongings, and privacy concerns. 

To get started on the decision, consider the following:

  • The size and complexity of your estate

  • How much you want to keep private

  • If you think you’ll need a trustee in your lifetime

  • How much money you can spend on a will or living trust

  • Whether or not you want to change a will or living trust over time

Once you’ve thought about the above, you may be more likely to choose a will if:

  • You have young children

  • You want to be able to make changes easily

  • Your assets are easy to manage and divide among beneficiaries

  • You have a specific plan for after you pass

You might be more likely to choose a living trust if:

  • You want to avoid a probate and keep the process private

  • You want to choose a trustee in case something happens to you while you’re still alive

  • You want your beneficiaries to receive money, property, or other belongings at a specific age or date whether or not you’re still alive

  • You want to reduce estate taxes

Planning during your retirement years

Understandably, there’s a lot on your mind as you transition into retirement. Estate planning is just the tip of the iceberg when it comes to managing your finances for your and your family’s future. If you need more guidance around how to organize your financial and medical wellbeing, check out some of these helpful resources:

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