Are you wondering about the benefits of starting a revocable living trust vs just a will?
For years, my wife and I put off what we know we have to do as responsible adults and parents, and create a will.
Without a will, the courts decide what happens to everything you leave behind: Your kids, your money, the house, the family dog, … everything!
Ask yourself this simple question: If my spouse and I were to get hit by a car tonight, is there anything in place to protect all of those things I just mentioned?
If the answer is “no”, then you absolutely need to sit down and do a little estate planning.
I know … it’s hard. It’s not fun to think about times when you’re not here anymore. It took me battling cancer and a few other scary events for us to finally call a lawyer and make it happen.
But it’s done now, and I’m glad we did it. Not just because we finally created our will, but because we also found out that to really protect your assets, you need take your estate planning a step further and create a trust too.
Here are all the important things you need to know about a living trust vs a will.
Why a Will Doesn’t Do Much for You
This may come as a surprise to you, but a will doesn’t do a whole lot for you.
It’s necessary; don’t get me wrong. A will tells the courts how your assets should be divided up and where things should go. But in our modern times (as I’ve come to learn), estate planning is a whole lot more complicated than that now.
The biggest problem with wills is that they must pass through a convoluted process called “probate”. This is where the courts analyze your will and decide whether or not to follow your wishes. This presents some major problems:
- It can take a lot of time. The probate process can go on for months. 3 to 6 months on average. That’s a lot of lost time for your loved ones.
- It can cost a lot of money. In order to successfully navigate your way through probate, you’re going to need proper legal representation. And that’s going to cost your estate or your loved ones whatever a lawyer charges. Think along the lines of something like $250 per hour! Multiply this by 3-6 months, and that’s a ton of expense!
- The will can be challenged. Despite your best and final wishes, your survivors can challenge your will. These could be your children, ex-wife, other family members, or even business partners who felt like they weren’t getting what they deserved.
- The will becomes public knowledge. This is perhaps one of the scariest reasons for me. Once a will passes through probate, it becomes public record. This means that if you leave one million dollars to your teenage children, guess what? Everyone knows! A very real and scary scenario is that every con-artist from miles around will be looking for a way to become romantic with your kids as they come f age; just so that they can get a piece of that inheritance. It’s disgraceful, but it happens.
- Little protection for minors. Another thing you may not be thinking about is that if you have minor children, a will really doesn’t do much to protect their inheritance until they’re at an age where they are responsible enough to know what to do with it. Could you imagine your 13 year old child inheriting your entire life savings? Even at 18, this could be bad news. I don’t care how responsible they are. It’s highly likely that some bad financial decisions will be made.
So if a will doesn’t help us in these areas, then what does? Enter a “trust”.
Why We Choose to Create a Living Trust Instead
A trust (or more specifically a revocable living trust) is kind of like a “super will”. When you create a trust, it’s officially its own legal entity, just like a business or company. This is a very important difference for a few reasons:
- Bypass the probate process. In the event that you and your spouse were to pass, the assets in the trust pass on to the beneficiaries according to the instructions of the trust. This is much different from a will because there is minimal court intervention. You get to skip all the headache and expense of probate.
- Privacy. The trust is private, and therefore no one except your lawyer, successor trustee, and beneficiaries know what it contains or what the final wishes are. For this reason, a trust is also much more difficult to challenge.
- Harder to challenge. Compared to a will, the content of the trust is somewhat bulletproof. If your survivors wanted to try to challenge it, they would either not be successful or have a much more difficult time attempting to do so.
- Financial protection for minors. Perhaps for us, the benefits to your minor children add the greatest amount of value. Again, with a will only, the minor would receive their inheritance all at once. However with the trust, you can leave instructions for how the money can and should be distributed. For example, you could decide to distribute 1/3 of the money for when they go to college, 1/3 when they turn age 25 (perhaps when they may want to get married or buy a house), and the rest when they turn 30 (maybe when they might start having children). This would help better ensure the longevity of their inheritance.
Protect More Than Just Your Money
Keep in mind that a trust can be used to protect and pass on more than just your savings.
For example, your home is a financial asset that you will want to one pass on as well. A trust on property will take effect as soon as it is created. This way you can dictate whether the home should be sold or if it should be maintained until your children are old enough to inherit it and decide for themselves.
The same protection could also be applied to your business, vehicles, recreation vehicles, jewelry, vacation homes, and anything else you own of value.
Do You Give Up Your Assets?
No, not with a revocable trust. Your assets are all yours, and you can revoke or amend the trust at any time.
(There is another family of trusts called “irrevocable trusts” where you do lose access to any assets you put into them. But these are used more to help protect against Medicaid “spend-down” – a whole other topic that I will surely write a post about.)
Does A Trust Cost More?
Yes. From calling around 7 different lawyers in our area, the average price to create a trust was $1,000 to $1,500. Compared to a simple will at $300, that’s quite a bit more expensive.
BUT, again, compare that $1,500 trust to the price of 3-6 months of probate at $250/hour. Now which one looks like a deal?
Estate Planning is Part of Retirement Planning
So there you have it. If you thought retirement planning was the last leg of financial planning that you’d ever have to deal with, as it turns out, it’s not. There’s a whole other level of estate planning.
However, like retirement planning, if you educate yourself on the basics and take action, it’s not too tough. You can save your loved ones a ton of trouble and make sure the assets you’ve spent your entire life acquiring get to where you wish they would go. As a responsible spouse or parent, this is just something you have to do.
Readers – How many of you have compared a revocable living trust vs will? Why did you decide to go with one or the other? What advantages and disadvantages do you see to either?
Photo credits: Flickr, Unsplash
Fervent Finance says
Nice work getting it all setup. So do the assets automatically transfer into the trust at passing, if they are still yours today? Curious how that all works.
It depends of the asset. Most taxable assets like your checking account and house should be re-titled into the trust. They still belong to you and are yours to do with as you please, but they would actually belong to the trust. Your tax-sheltered retirement assets however don’t get re-titled for tax and penalty reasons. For these you designate the trust as your beneficiary. In both cases the assets all skip probate and transfer into the trust after you pass. They then distribute to your heirs per whatever terms you put into the trust.
Jack @ Enwealthen says
Thanks for the reminder. We’ve been meaning to update our wills since the kids were born, but you know how it is. I’ve read about trusts, primarily for saving for the kids college, but also for tax advantages. Sounds like we should be looking at a revocable trust instead.
Time to call the lawyer!
The revocable trust is pretty nice for skipping probate and getting your money into the hands of those you want to have it. Yes, time to make that call to the lawyer!
Joanne Mahoney says
Good to know that my husband and I did the right thing. We created a trust when our children were teenagers. Now that they are adults (30 and 26), we probably should revisit our lawyer. My biggest concern was that our kids would not be able to handle all that money…
That’s exactly how we feel now. With the kids so young, there’s no way they would know what to properly do with the savings they would inherit. With the trust, we feel like we’re looking out for them even beyond our passing.
Yes, with your kids grown, the terms of your trust could probably be much different. And if there are grandchildren in the picture, that may change the game too.
Jayson @ Monster Piggy Bank says
It’s good to know that you have a will. This is one that is most often overlooked and most consider this as not an immediate need, but I think it’s better to take care of this for your kids or family members. And, I very much agree that it’s a sign that you take care of your love ones.
Thanks Jayson. It’s tough to do these things, but they’ve got to be done.
My wife and I were just talking last week about the need to update our wills. Now we need to revisit the conversation to include researching whether or not a Trust is the better option for us.
Thanks for bringing this to our attention.
You are very welcome! I’m sure each couple will find different reasons for either the will or the trust; it will totally depend on the situation. But I will say – based on ours, the trust made a lot more sense.
Wow so many benefits to getting a trust. Thanks for the break down and will look into getting my own trust.
Good luck checking into it. I think you’ll find the trust has a lot of very interesting benefits.
Rajesh Sharma says
Awesome information, totally agree with pain associated with tge process of probate ..
Pearlie S.Gilligan says
I found your post very useful and it is very informative.
The creation of a living trust is something that is considered important when a testator owns more than one piece of property.
Creating a trust has some notable advantages over making a will.
If one simply makes a will, the document and the provisions contained therein are subject to probate, which can see a long and often upsetting delay in the provisions being legally ratified.
Thanks for sharing your thoughts regarding this topic which is useful for everyone.
I bookmark your post for the future visit. And please share more post like this.
Zac Knipe says
Each person or couple should discuss with their attorney whether or not to set up a living trust and how to do it after reviewing the size and nature of the estate, the goals desired, and the fees and costs to be spent. While there are many do-it-yourself kits and computer programs available, you use them at your own risk.
Even attorneys make mistakes that can destroy a client’s objectives. Virtually every attorney who prepares living trusts can tell you horror stories about clients who committed malpractice on themselves. You are always safer with proper legal advice, and the least expensive is not always the best
I couldn’t agree more. Legal matters are not one of those things you just try to do yourself. Always speak with a lawyer and get real advice.
Nick Reichert says
Great post. We have just finished updating our estate plan after 14 years. Trust is the way to go!
It’s a minor point but even with no trust and just a will the amount of funds you pass to your kids is not made public. The reason is wills are not used to hand down financial accounts. That is done using a beneficiary designation for the account. No matter what a will says, the funds will transfer tax free to your designated beneficiaries. There are valid reasons for some people to consider a trust but secrecy is not really improved by using one except for items that do go through probate. Which often is only a tiny fraction of the estate. My parents went the trust route and I am not using one, it is kind of dependant on preference and the other factors you made excellent points on!
Rebecca Gardner says
I was pretty surprised when you explained that it can take as long as six months for a will to completely go through the probate process. My husband and I want to meet with an estate planning attorney within the next couple of weeks so we can have peace of mind about the future of our kids and grandkids. Thanks for helping me see why we should ask about a living trust in addition to updating our will!