THE DIFFERENCE BETWEEN A LIVING TRUST AND A WILL
Updated: Apr 10
The probate process can be complex and confusing for those unfamiliar with the laws governing estates.
Deciding between a living trust and a will is an important decision that requires careful consideration.
This article will provide an overview of the differences between these two options, as well as the implications they have on the probate process.
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Living Trust vs. Will
A living trust is a legal document that places assets into trust ownership, allowing them to bypass probate court.
A will, on the other hand, requires court approval before assets can be distributed to beneficiaries.
This can lead to delays and added expenses in court fees and legal fees associated with the probate process.
The choice between a living trust or a will should be made based on various considerations, including asset size and accounts held. In addition, should you choose to establish a living trust, you’ll need to factor in asset management fees and other costs associated with maintaining it.
We’ll break down all of these considerations for you in this article so you can make an informed decision about which option is best for your situation.
What Is the Probate Process?
When it comes to estate planning, the probate process is an important factor to consider.
Probate is a legal process that distributes the assets of a deceased person to their heirs as outlined in their will or living trust. It's a way for the court to ensure the deceased person's wishes are met and that their heirs are properly taken care of.
Simply put, the probate process is the method used to transfer ownership of a deceased person's property, such as houses, vehicles, and other belongings to their named beneficiaries or heirs.
During probate, a court-appointed executor files paperwork with the court so that title, rights, and obligations are transferred accordingly.
This is done through either a will or a living trust. The primary difference between these two documents is that with a will, all of the deceased person’s assets go through probate before they go to their heirs, while with a living trust, they do not need to go through probate which can save time and money when transferring ownership of assets.
Living Trust Provides Benefits Over Wills.
One of the biggest advantages of creating a living trust is that it avoids probate.
The court-supervised process of validating a will is called probate, and it can be expensive and time-consuming.
Without a living trust, your heirs could end up dealing with the probate court for months or even years after your death.
On the other hand, assets held in a living trust can be transferred without going through probate. This saves your heirs the time, expense, and hassle of working through the process.
Property held in a living trust also passes directly to beneficiaries without any delays or hassles associated with probate.
Additionally, if you have minor children, you can designate in the living trust who will care for them in case something happens to you and your spouse.
You may also include instructions regarding when and under what circumstances they will receive their inheritance from the trust. This helps ensure that your children are taken care of after you are gone.
What Happens to a Will When There Is No Probate?
When you pass away, your will needs to be legally entered into the probate court system.
This is known as probating a will.
During the probate process, the court reviews and verifies the validity of a will and apportions assets and liabilities according to its instructions.
But what happens if the will is never entered into probate? In that case, the will is invalid, so all of your assets and liabilities must be divided in accordance with the laws of intestacy.
These laws vary from state to state but generally involve distributing property among surviving relatives, beginning with the closest family members.
On the other hand, a living trust eliminates the need for a probate process. The trust is set up during your lifetime, with you being both trustor (the person who sets up the trust) and the trustee (the person who manages it).
The trust document stipulates how your assets are to be distributed after you pass away, which is done without court intervention by appointed trustees.
What Rights Do the Beneficiaries of the Trust Have?
One of the most important things to understand when considering a living trust is what rights the beneficiaries will have.
The answer depends on the type and structure of the trust, but generally, beneficiaries can expect:
Access to all information about the trust and its assets
Right to receive and trade trust assets as stated in the documents
Right to contest any provisions of the trust which they do not feel are fair or just
Right to receive regular payments from income generated by trust assets, as determined by the terms of the trust agreement
Right to be informed of any changes in trusteeship or other relevant changes occurring in relation to the trust
Right to seek additional information with regards to their rights under a living trust
Dependent upon state law, right to enforce full or portion payment of their entitlement under the living trust, if needed
It is important for anyone considering a living trust to be aware of these rights so they can make an informed decision about how best to protect their assets and provide for their family's future.
What Are Trustee's Duties in Administering a Living Trust?
When you create a living trust, you are responsible for appointing a trustee to manage and administer the trust assets.
This person is responsible for ensuring that your assets are distributed according to your wishes and that the process is handled efficiently and effectively.
The duties of a trustee in administering a living trust include:
Investing assets in accordance with state law and the terms of the trust
Distributing assets to beneficiaries according to the terms of the trust
Maintaining records, such as tax returns, asset evaluations, and other paperwork related to trust management
Monitoring trusteeship fees charged by service providers
Obtaining legal advice regarding distribution of trusts or settling disputes between beneficiaries
Filing tax returns when applicable
Ensuring benefits eligibility for beneficiaries who are receiving government benefits like Social Security or Medicaid
Assigning specific duties to an appropriate fiduciary if necessary
These duties all serve to ensure that your wishes in establishing the trust remain fulfilled after your death and that the probate process goes smoothly for your loved ones.
How to Help Your Heirs Avoid the Probate Process
Deciding between a living trust and a will can be overwhelming, but the reward of streamlining your heirs' probate process makes it worth the effort.
There are several ways to help your heirs avoid the probate process in both options:
A living trust will bypass probate court, providing an easier and faster way for your beneficiaries to receive their inheritance.
A living trust also offers flexibility, making it an attractive choice for families who want to designate special instructions for how their estate should be handled upon death.
While a will does not necessarily prevent your heirs from going through the probate process, there are certain steps you can take to make it less complicated.
For instance, having “transfer on death” forms attached to your bank accounts or other financial assets will help ensure that those assets are transferred quickly and seamlessly after you pass away.
Additionally, designating beneficiaries with life insurance or retirement plans may expedite the distribution process.
Depending on your financial situation and wishes, you may find one option more suitable than another - consulting with a knowledgeable attorney is key when making this important decision.
All in all, the probate process can be a difficult one for those who are unfamiliar with it. Understanding the differences between a living trust and a will can help ensure that the process goes more smoothly.
A living trust offers more flexibility and control, while a will is a good choice for those with a smaller estate.
Ultimately, the decision should be based on your individual needs and preferences. It’s a good idea to work with an probate attorney and a certified probate real estate agent, if real estate is involved, when considering which option is best for you, as they can provide valuable insights and advice, as well as guide you through the entire process.
Certified Probate Real Estate Specialist
* NOTE: North Carolina Probate Solutions and the author of this article is not a licensed attorney or CPA. This post should not be considered legal or tax advice. Always consult an estate attorney or tax professional when needing legal answers and legal advice.