A Comparison of a Living Trust to a Last Will

Living trusts and last wills fall under the larger umbrella of "estate planning" documents. They are both concerned with asset allocation and the establishment of possession rights to an individual's property. The documents differ, however, in the management of these assets. It is important to understand how the two compare to each other in order to determine specific estate planning needs.

Significance

Living trusts and last wills are both important components in estate planning. Many people are under the false assumption that the two documents are the same thing. Although there are some similarities between the two, trusts and wills are separate legal documents which can work together to help form the basis of a robust legal estate plan. Not all individuals need both, but it is a smart decision to at least have one or the other.

Living Trusts

A living trust places assets (bank accounts, homes and stocks, for example) into a "trust." The living trust administers the assets for the benefit of the individual during his lifetime, and then is transferred to the beneficiaries upon his death. The "trustee," typically the individual who opens the trust (also known as the "grantor"), determines who the beneficiaries will be for the trust.

One advantage to preparing a living trust is that all assets will be managed according to the trust, even if something happens to the trustee and he cannot manage the assets himself. Additionally, a successor trustee can be named and would take over the management of the trust upon the death of the original trustee.

Last Wills

A last will establishes what actually happens to an individual's property upon his death. The individual preparing the last will is referred to as a "testator." The will covers the property and assets not addressed in the living trust. A "pour-over will" puts all assets into a trust, and then the property is divided up in accordance with the last will of the individual.

One important characteristic of a last will is the fact it that must be administered by a probate court before the instructions can be carried out. A personal representative is named, and it is this person's duty to administer the will according to the instructions contained within the document. The will might nominate an individual to be the personal representative, but it is ultimately up to the court to make the decision to appoint someone.

Similarities

Living trusts and last wills are both concerned with the establishment of ownership to assets and property. Each is vital to allocating an individual's personal property to heirs upon one's death.

Both documents are important pieces of a person's estate plan and should be drafted by a qualified estate planning lawyer. There are forms which can be filled out online, but an actual lawyer will be able to answer questions and provide the proper guidance in preparing an estate plan.

Whether an individual has a living trust or last will, certain steps (appointment, publication, inventory, payment of expenses, distribution of assets and accounting) are required upon his death. The administrative requirements for both documents are similar.

Differences

Whereas a last will takes effect upon the death of an individual, assets can continually be placed into a living trust throughout his lifetime.

The nomination of guardianship for minor children is not addressed in a living trust, but a last will is often used by young couples to establish this important matter.

A living trust might have a successor trustee named and the trust continues to live, but a last will ends with the death of the testator. There is no further action beyond the execution of the will at that point.

References

• Living Trust vs. Will