You most likely know that when you die, you need to leave a will (also known as a Last Will and Testament), to define the distribution and beneficiaries of your assets. But most people don’t know as much about the option to create and leave behind a living trust, or what the difference is between a living trust and a will. The two have similar properties but differ in several important ways. Here’s a brief explanation of a living trust vs. a will:
What is a Will?
Let’s start with the more familiar term first. A will is a legal document that records your wishes for what will happen to your property after you pass away. It will also determine the care of any minor children. It must be set in writing and signed by you and possibly by witnesses.
The most common type of will is a testamentary will. Another type of will is a living will, known in Virginia as an advanced medical directive. It records your medical care wishes in the case that you become incapacitated. More information about wills can be found through the American Bar Association’s “Introduction to Wills.”
What is a Living Trust?
You can create a living (or inter vivos) trust during your lifetime to designate an easy transfer of your assets. It is a written document that appoints a trustee (either yourself or someone else) who holds legal possession of assets and property transferred into that trust while you are still alive. Upon your death, the assets of the living trust are distributed to your beneficiaries or used as stated in the trust agreement.
A living trust may be either irrevocable or revocable. In an irrevocable trust, the settlor has no ability to withdraw the assets or change the terms of the trust. In a revocable trust, the settlor can change the trust or dissolve it at any time. Most living trusts are revocable until the death of the settlor.
A Living Trust vs a Will
According to Investopedia, the main difference between a living trust vs. a will is that “a living trust is in effect while the settlor is alive, and that unlike a will, the trust does not have to clear the courts to reach its intended beneficiaries when the settlor dies or becomes incapacitated.”
The living trust itself “can be named the beneficiary of assets that would otherwise flow directly to the named beneficiary regardless of what is stated in the will.” These can include 401(K) and IRA accounts, life insurance policies, and Payable on Death (POD) bank accounts.
Other items a living trust can provide include:
- Specification of when a child can access assets held in the trust.
- Protection of assets if your estate exceeds the current tax thresholds. Tax planning provisions can be set up.
- Management of your assets when you are unable to do it yourself.
Check with an Estate Planning Attorney
If you would like more information on a living trust vs. a will, contact The Law Office of Joshua E. Hummer. We will be glad to explain the differences. We can also help you determine whether a living trust or a will is a better choice for your estate, and help you to create the legal documents that support your decision.
Setting up a legal trust can be tricky, so be sure to engage the legal services of an estate planning attorney to ensure its validity. Contact The Law Office of Joshua E. Hummer today. Serving clients in Winchester and throughout Virginia.