Should you choose a Will or a Living Trust?
By Maria N. Berger
Many people have heard good things about a document called the “Living Trust” and come to my office wondering if it would be a better option for them than the traditional Will. The truth is some people can benefit from the Living Trust, but just as many don’t need the more complex document and the additional cost associated with it. A better understanding of both documents can help you decide.
Both a Will and a Living Trust, in essence, accomplish the same basic things: they provide for the distribution of your assets, guardianship of your children, and payment of your debts. The main difference between a Will and a Living Trust is how these things are accomplished - and that how can create certain advantages for you and your heirs.
With a traditional Will, after your death, your representative (called an executor) must file your Will at the courthouse and, in most instances, open a probate proceeding. The Court then issues what are called “Letters Testamentary” or letters of office, which authorize your executor to handle your assets in accordance with the Will. A Judge must approve an inventory of your assets and debts before they can be released to your beneficiaries. A probate case must remain open for at least six months to give creditors time to file claims against the Estate. The approximate cost for an estate to be probated, at the low end, is $4,000.00. Complicated Estates can cost quite a bit more.
The Living Trust, on the other hand, does not need to be filed at the courthouse, and your representative does not have to open a probate estate in most situations. The Trust itself is a legal entity, separate from the individual creating it, similar to a corporation or LLC. And just like a corporation, the Trust can own its own property.
"The truth is some people can benefit from the Living Trust, but just as many don’t need the more complex document and the additional cost associated with it."
When you create a Trust, you transfer ownership of your assets into the name of the Trust, so that now your Trust owns your property, not you. Don’t worry; by naming yourself as the initial trustee, you make sure you retain complete control over all trust property during your lifetime – you can even revoke the Trust at any time. You also name a successor Trustee to take over upon your death, and you direct that Trustee to distribute the property according to your wishes. You can even direct the Trustee to distribute the property to your beneficiaries over time or at certain ages. This is done most often for minor children.
Upon your death, there is usually no need for the Trustee to open a probate proceeding because the Trust, as a legal entity, continues in existence despite your death. The only change is that the successor trustee begins acting in your place. The acting trustee has all the same power over your property that you had during your lifetime, but is required to act in accordance with your Trust.
For example, let’s say you state in your Trust that all money held in your bank accounts is to be given equally to your two children on your death. As soon as you have passed away, the Trustee is entitled to access and close your bank account and immediately give out the money as you have directed. Moreover, the Trustee MUST distribute the money equally to your children, in accordance with your Trust. Court approval is not required.
So why wouldn’t you opt for a Living Trust? Primarily because it is more expensive – double or triple the cost of a Will. For that expense, it only makes sense to get a Living Trust in certain situations. The following are the three primary reasons most people choose a trust over a will:
1. Privacy. If for any reason you do not want your affairs made public, you will not want to have your Will filed, and may prefer a Trust. A Trust does not have to be filed with the Circuit Clerk upon you death.
2. Probate Avoidance. There are many horror stories about probating a Will, but the truth is most probate proceedings are fairly painless. However, some family situations are ripe for conflict, and disgruntled family members might take this out through the probate process, slowing it down. Some people feel strongly about avoiding the probate process for their heirs, and if that’s you, you may want to consider a Trust.
3. Tax Savings. Depending upon your total taxable assets at your death (which includes payouts from life insurance and other investments that pay directly to a beneficiary), you may be able to gain estate tax advantages from a Living Trust. The current federal estate tax exemption per individual decedent is $5,120,000.00. The current Illinois estate tax exemption per individual decedent is $2,000,000.00. You should consult with an attorney or CPA to determine your actual taxable net worth, which can be much higher than most individuals anticipate.
Of course, each situation is unique, so you should see your attorney to determine which documents are right for you.