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.
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.
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.
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.
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:
Once you’ve thought about the above, you may be more likely to choose a will if:
You might be more likely to choose a living trust if:
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: