What’s the difference between a will and a living trust?
The information in this column is intended to provide a general understanding of the law, not as legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances.
Q: I had a will made in 2011, and circumstances have changed since then. I would like to make a new will. I was told by a family friend that I should make a living trust instead of a will. Can you explain the difference between the two documents to me?
A: Books have been written on this subject, so it is simply not possible to answer your question fully in the space this column is allotted. The following is a general overview of the differences between the two documents.
A will is a document that transfers certain properties you own when you die. Some of your properties pass automatically, like life insurance or an account that has a payable on death beneficiary, but others such as real estate or a bank account in your name alone will pass as provided in your will.
A living trust is also a document that transfers property when you die. But it only affects property that has been previously transferred to it. If any assets are left out, then your fall-back will would dispose of those items. Usually, the fallback will (called a “pourover” will) gives those properties to the living trust, but in order for the will to take effect, it must be probated. And that’s what you are trying to avoid by having the living trust.
So for a living trust to work properly, everything you own (or at least everything that doesn’t otherwise pass automatically) must be transferred to the trust before you die. That can be easy if you own just a few properties, such as a home and a checking account. But it can also be very difficult if you own many varied types of properties.
Living trusts are usually more complicated to read and understand, and consequently, they are usually more expensive to create as far as lawyer’s fees are concerned. With a will, you sign it and file it away in a drawer or in your safe deposit box. With a living trust, you must live your life out of it, always being sure to have all of your investments properly styled so that the trust is the owner.
Probate can be expensive, and as you mentioned, those fees can be avoided if the living trust functions exactly as planned. However, if you leave even one single item out of the trust, then probate will be needed. And probate costs just about the same price whether you have one asset or many different assets.
For some people, especially wealthy married couples, there will be trusts created after death, and there might also be complicated tax returns to prepare. Therefore, lawyers’ fees might still be an unavoidable issue whether they have a will or a living trust.