For most people, one of the primary goals of an estate plan is to ensure that the estate they leave behind is distributed according to their wishes. If that is one of your primary goals, you will need to decide which estate planning tool to use to accomplish that goal. Most people execute a Last Will and Testament initially; however, as their estate and their family grow they often decide a living trust is a better option for the foundation of their estate plan. Living trust vs. Will – a better understanding of how both work to distribute your estate may help you decide which is the better option for your estate plan.
Last Will and Testament Basics
By far the most well-known of all estate planning tools, a Last Will and Testament is a legal document that communicates a person’s final wishes pertaining to possessions and dependents. Your Will allows you to make both specific and general gifts. For example, you might make specific gifts of your art collection along with stock in Apple to a designated beneficiary. You could also gift a percentage of your estate to your son. For example, you could gift half of your entire estate to your daughter. Your Will is also where you will appoint someone to be the Executor of your estate. Your Executor plays a vital role in the probate of your estate after your death. Finally, a Will provides you with the only official opportunity you will have to nominate a Guardian for your minor children in the event one is ever needed after you are gone.
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the legalities of creation are in place.
A trust agreement is also a legal document that serves to establish a trust. Assets held in the trust are distributed by the Trustee according to the terms of the trust. When used to distribute estate assets after the death of a Settlor, the trust terms will tell the Trustee when to distribute assets and which assets to distribute to which beneficiaries.
Living Trust vs. Will – Which One Is Better?
Either a Will or a living trust can be used to distribute your estate assets. When deciding which one to use as your primary estate planning instrument, the following factors are worthy of consideration:
- Privacy – because a Will must be submitted to the appropriate court for probate, the terms of a Will become public record. If privacy is a concern, a living trust is the better option because unlike a Will, a trust does not become part of the probate process.
- Minor children – a minor child cannot inherit directly from your estate. Therefore, if you are the parent of a minor child, or you plan to have children in the near future, a trust is a better option to guard your child’s inheritance until he/she reaches the age of majority.
- Probate avoidance – probate is the legal process that follows the death of an individual. Probate can be time-consuming and costly. A Will is generally required to go through the probate process as are most assets distributed through the provisions in a Will. Trust assets, on the other hand, bypass the probate process entirely, allowing them to be distributed immediately after your death if you so choose. If your beneficiaries will need those assets right away, a trust is a better option.
- Beneficiary concerns – gifts made in your Will become the unconditional property of the beneficiary once the transfer of ownership is complete. If you have a spendthrift beneficiary, or a beneficiary who has an addiction problem or mental health issues, to whom gifting a lump sum of money is not a good idea, a trust might be a better choice. A Trustee manages the assets held in a trust and the Settlor creates the terms of the trust, allowing you to retain a certain degree of control over gifts you make using a trust. It also allows you to distribute the beneficiary’s inheritance in small sums over a greater period of time.
Contact Indiana Estate Planning Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions about whether a living trust or a Will is better for your estate plan, contact the experienced Indiana estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.