Compare Estate Planning Documents - Living Trust vs. Will vs. Living Will (2024)

FAQs

Compare Estate Planning Documents - Living Trust vs. Will vs. Living Will? ›

The main difference between a last will and testament and a living trust is when they take effect and whether they go through the probate process. A last will and testament takes effect upon death and must go through probate; a living trust takes effect when a person is alive and does not go through probate.

The main advantage of using a living trust is avoiding probate court, which means your beneficiaries can access the assets as soon as you die. Helpful hint: The assets in a trust account can still gain value, such as rental income from properties or capital gains from money market investment accounts.

Cons of a trust

It may also require more of their time to set it up. “It's more expensive for them to assist or to guide you on transferring assets.” More complex. While wills are relatively straightforward, trusts can be more complicated to set up.

Cons of a Living Will

There are also some downsides including: You may not be able to anticipate every medical decision that needs to be made in the future. You can't be sure every doctor will have a copy of your instructions or comply with them.

The major disadvantages that are associated with trusts are their perceived irrevocability, the loss of control over assets that are put into trust and their costs. In fact trusts can be made revocable, but this generally has negative consequences in respect of tax, estate duty, asset protection and stamp duty.

On the other hand, a good rule of thumb is to consider a revocable living trust if your net worth is at least $100,000. Even so, be sure to check your state's “small estate” laws—which set dollar amounts or caps for a decedent's estate—knowing that anything below these thresholds may allow you to bypass probate.

A living trust can help you manage and pass on a variety of assets. However, there are a few asset types that generally shouldn't go in a living trust, including retirement accounts, health savings accounts, life insurance policies, UTMA or UGMA accounts and vehicles.

One of the most significant disadvantages of a trust is its complexity. Generally, trusts use very specific language, which can be difficult to understand for those who are not often involved in estate law. Because trusts were once written in Latin, there are many legal terms that still carry over.

Asset protection: A properly designed trust can also protect the assets in it from creditors, predators and failed marriages. In addition, a properly designed trust can protect the assets in it from long-term care and nursing home costs.

Can you put a house with a mortgage in an irrevocable trust? ›

Can a house with a mortgage be put in an irrevocable trust? Yes. If you're setting up an irrevocable trust, you can certainly transfer your mortgaged house to the trust. You are not required to pay off the mortgage before you transfer the property to the trust.

Revocable trusts last as long as you want them to and can be canceled at any time. At the time of your death, a revocable trust becomes irrevocable. Irrevocable trusts are permanent. They last for your entire lifetime and after you've passed.

Regardless of what your will says, whoever is named as the designated beneficiary on each account will receive that asset. Period.

Power of attorney can cover all medical decisions. Living wills only apply to decisions regarding “life-sustaining treatment” in the event of a “terminal illness.” A terminal illness does not include Alzheimer's Disease, dementia, or coma.

If you're seriously ill and can't communicate your wishes about medical care, a living will can help ensure you get the care you want. A living will is an important part of advance care planning, which involves discussing and preparing for future health care decisions in the event you can't make them.

The main purpose of a living trust is to oversee the transfer of your assets after your death. Under the terms of the living trust, you are the grantor of the trust, and the person you designate to distribute the trust's assets after your death is known as the successor trustee.

Many advisors and attorneys recommend a $100K minimum net worth for a living trust. However, there are other factors to consider depending on your personal situation.

Creating a revocable living trust gives you a legal document that will protect your property, including your bank accounts and any other assets in your estate. You should put your bank accounts in a living trust to ensure the funds are easily accessible for your beneficiaries when the time comes to inherit.