A living trust is a legal document that holds ownership of your assets, including your home, bank accounts and stocks. During your lifetime, you can access your assets and even remove them from the trust. After your death, the trust assets are transferred to your beneficiaries. A will is a legal declaration that tells the world who you want to receive your assets upon death. A living trust can act as a substitute for a will. Although a trust offers more flexibility, the better option depends on what you want to accomplish.
A will does not allow you to avoid probate. Certain assets are exempt from probate, even without a trust. Individual Retirement Accounts, bank accounts and life insurance policies allow you to name a beneficiary that receives funds upon your death. Property that is not exempt must go through the official court process of settling the estate known as probate. If you owe debt at the time of death, creditor claims are settled before probate assets are distributed. Assets placed in a living trust bypass probate by transferring to the named beneficiary immediately or at a later date. Although a living trust avoids probate, property held in the trust is subject to your lawful debt.
Upon death, wills become public record. Your family members will have little privacy. If you would like to keep your estate private, a living trust allows you to discretely pass assets to your beneficiaries. The privacy of a living trust makes it more difficult for disgruntled heirs to challenge the asset distribution.
Avoiding a Conservatorship
A living trust lets you name someone, such as your spouse, partner or child, to have authority over trust assets if you become incapacitated and unable to manage your finances. The person you appoint has permission to make financial and legal decisions on your behalf. Living trusts allow you to avoid a conservatorship, which is a court hearing to determine who will be responsible for managing your finances. With a living will, you can grant someone durable power of attorney to look over your finances if you become mentally incompetent.
If you have children or grandchildren, a living trust allows you to establish provisions specifying when a child will be entitled to receive assets. Living wills allow you to have complete control over the assets. You can specify the age you want your beneficiary to receive the assets or have a percentage at a time. Living wills can provide peace of mind if you are concerned about a young adult spending her inheritance frivolously. With a will, you have no control over the property once bequeathed. A will allows you to appoint a guardian only until the child reaches legal age.