Planning for the future is an essential step in ensuring your assets and loved ones are well taken care of when you're no longer able to do so. We at Bequest commonly use two estate planning tools to plan for our clients: wills and revocable living trusts. While both serve the purpose of distributing your assets upon your passing, they have distinct differences. In this blog post, we'll explore the dissimilarities between a will and a revocable living trust and shed light on the reasons why someone might choose a revocable living trust over a will.
Wills: A Traditional Approach
A will, also known as a "last will and testament," is a legal document that outlines your wishes regarding the distribution of your assets after your death. It can also include guardianship for your kids as well as burial or cremation preferences. Here are some key features and characteristics of a will:
Simplicity: Creating a will is often a straightforward process that allows you to designate beneficiaries and allocate specific assets to them.
Probate: Wills generally go through probate, a legal process that validates the document and ensures its authenticity. This process can be time-consuming and costly.
Privacy: Wills become publicly accessible documents during probate, which means the details of your assets and beneficiaries become part of the public record.
Flexibility: Wills can be modified or revoked at any time during your lifetime, as long as you have the testamentary capacity to do so.
Contingent Trusts: Clients often create “testamentary trusts” for their minor children within their wills, but those trusts are only created after death and through the probate process.
Revocable Living Trusts: A Versatile Estate Planning Tool
A revocable living trust, also referred to as a "living trust" or "inter vivos trust," is an estate planning instrument that holds your assets during your lifetime and allows for seamless transfer of these assets after your death. Here's a closer look at revocable living trusts:
Avoidance of Probate: One significant advantage of a revocable living trust is that it bypasses the probate process entirely, saving time and costs (especially when there is out-of-state property involved). Assets held within the trust are transferred directly to the designated beneficiaries upon the grantor's death.
Privacy and Confidentiality: Unlike wills, revocable living trusts remain private documents, providing a level of confidentiality as the details of your assets and beneficiaries are not accessible to the public.
Incapacity Planning: A revocable living trust can also provide for the management of your assets in the event of your incapacity. A successor trustee, named by you, can step in to manage your affairs without the need for court intervention.
Flexibility and Control: While you're alive and of sound mind, you have the power to modify or revoke the terms of your trust at any time, giving you greater flexibility and control over your assets.
Tax Planning: For clients with a taxable estate, a revocable living trust can create tax savings or deferrals.
Why Choose a Revocable Living Trust?
While wills have been the traditional choice for estate planning, revocable living trusts have gained popularity for several reasons:
Avoiding Probate: By utilizing a revocable living trust, you can bypass the probate process, which can be lengthy, expensive, and open to public scrutiny. This is especially important when clients have out-of-state property.
Privacy and Confidentiality: Revocable living trusts offer privacy, ensuring that the details of your assets and beneficiaries remain confidential.
Incapacity Planning: The inclusion of provisions for incapacity planning within a revocable living trust ensures that your assets are effectively managed if you become unable to do so yourself.
Asset Protection: A living trust can provide asset protection for your beneficiaries. It allows you to place certain restrictions on the distribution of assets, protecting them from potential creditors, lawsuits, or divorces.
Tax Planning: A living trust can reduce or delay estate taxes.
While wills and revocable living trusts serve the common purpose of distributing your assets after your passing, they differ significantly in terms of probate, privacy, flexibility, and control. Call Bequest today to decide which planning technique is best for your family!