Is A Will Good Enough or Should I Have a Living Trust?
May 23rd, 2022
One of the most common questions asked during the estate planning process is whether a last will and testament is sufficient, or a living trust is also needed. The answer is that it depends. Neither estate planning tool is better than the other — they both serve different purposes. The tool that is right for your case will be based on your specific needs and planning goals.
What is a Living Trust?
A revocable living trust is a written agreement that creates a legal entity which holds assets or title to property. Similar to a will, the document contains specific instructions regarding how you wish your property to be managed and distributed in the event of incapacity or death. However, unlike a will, this document is private, and the assets held in the trust do not need to go through the public probate process.
Just as its name suggests, a living trust is established during the lifetime of its creator (also referred to as a grantor or settlor). The property placed in the trust are owned and controlled by the settlor while they are alive. Upon your passing, the beneficiaries named in the trust will be able to transfer the assets to themselves — instantly and privately, without anyone’s authority or permission.
What are the Benefits of a Living Trust?
There are numerous benefits to setting up a living trust. It allows you to pass assets to your heirs without court intervention and control how your property will be distributed. In addition to being a vehicle that can immediately transfer assets after your death, it can also manage your affairs during your lifetime if you become incapable of doing so.
Specifically, a living trust can allow you to achieve the following objectives:
- Avoid probate — A living trust eliminates the need for probate proceedings for the property in the trust. Significantly, it also reduces the cost associated with the probate process, which can be as much as several thousand dollars. Importantly, real estate located out of state will avoid foreign probate (called “ancillary administration”) if it is titled in the name of the trust. However, it’s essential to note that a revocable trust does not avoid the probate process altogether. Certain procedures, such as Notice to Creditors, must still be completed.
- Avoid estate taxes — Estate taxes are those which the government takes when property passes from a decedent to their heirs. These can be reduced or eliminated entirely with a living trust. You can pass an unlimited amount to a spouse or qualified charity with no estate tax, and a substantial amount tax-free to other heirs.
- Maintain flexibility — A living trust is a flexible document that can be used to consolidate assets and plan for unforeseen circumstances. The trust can be altered at any time if your family or financial circumstances change.
- Manage your business affairs — A living trust allows you to designate who will manage your business affairs if you become incapacitated or incompetent. If this occurs, then the successor trustee of your choice will step in and manage the trust assets. In addition, your current investment advisor can continue to carry out the investment strategy that you established.
- Keep costs down — Administrative and professional fees regarding the estate administration work to be completed at death can be minimized when a living trust has been established. Without a revocable trust, administrative and professional fees can be substantial, depending upon the value of your estate. Often, a trust can save tens of thousands of dollars in administrative fees.
- Ensure financial matters are private — Under North Carolina law, your will becomes a public document upon your passing and the value of each asset in your estate must be reported. If your will simply references your revocable trust (which is not public) as the controlling document, then your financial and family matters will remain private.
- Protect beneficiaries — Your beneficiaries’ creditors cannot attach or take your property as long as proper “spendthrift” provisions are used in the trust. In other words, you can preserve and protect assets for less responsible or less capable family members.
By using appropriate trust language, you can also authorize — or even require — your trustee to “move” the trust to another state when the beneficiaries relocate or to receive better tax treatment.
Differences Between a Will and a Living Trust
A will is the foundation of every estate plan, but sometimes it isn’t enough. Although a will can do some things that a trust cannot, such as name an executor or a guardian for a child, it’s generally best to have both documents in place for maximum protection. While both estate planning tools can distribute property, a will is the document in which you would also leave instructions regarding how taxes and debts should be paid. Notably, a will also cannot help you avoid a conservatorship due to incapacity or safeguard your estate from court challenges — this is where a living trust comes into play.
Wills are easy to create, while trusts typically require more planning and paperwork. But the biggest difference between the two estate planning tools is when they become effective. A will only goes into effect at the time of your death. It will then need to go through the probate process before your assets and property can be distributed. A living trust goes into effect once it is signed and funded.
Contact an Experienced Southern Pines Estate Planning Attorney
Drafting a will or creating a trust can feel overwhelming, and it’s crucial to have a knowledgeable attorney by your side to help you navigate the process. Carolina Tax, Trusts, & Estates is dedicated to assisting clients with the complexities associated with a wide variety of estate planning matters. We welcome you to contact us for a complimentary consultation to learn how we can help you create a North Carolina estate plan that provides you with peace of mind.
Categories: Estate Planning