Living Trust Vs. Payable on Death
If you have assets that total more than $100,000 and would like to have a say over where your assets go after you die, estate planning is a necessity. There are a number of ways of controlling your assets, including a last will and testament, a living trust and payable on death. Each of these estate planning tools serves a different purpose.
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Laws of Intestacy
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To understand why you might choose a living trust or payable on death instrument, you must understand the ramifications of leaving your assets to pass under your last will and testament, or worse, dying without a willl. As the saying goes, "Everyone has an estate plan. If you don't make a plan, your state laws will decide who gets your assets." Each state has laws of intestacy to deal with distribution of assets at death if you have not made a will or created a living trust, and your assets have not been set up as payable on death. If you have a small estate and you are satisfied with your state's laws of intestacy, you have little to worry about except the expense and delay of a probate court proceeding.
Last Will and Testament
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If you would rather make the decision about who gets your assets after you die, you can draw a last will and testament, also called a will. Your will allows you to make gifts or bequests to those individuals or charities that you choose. You can also create a trust under your will, called a testamentary trust. Under your will, your estate still passes through probate court, but you are able to name the executor, who is the person who will handle your estate distribution.
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Living Trust
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A living trust is a legal arrangement that you, the grantor, make during your lifetime. You choose a trustee to safeguard and invest your assets as you decide. You specify to whom, in what amounts, and when your trust assets are to be distributed. A living trust avoids probate. Your trustee acts on your behalf after you die to ensure that the terms of your living trust are carried out. A living trust can also have estate tax benefits if you have a large estate, one in excess of $1 million at time of publication.
Payable on Death
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For certain assets, you are able to use a more direct method of transferring ownership when you die. Payable on death is a way of titling assets that avoids probate even if you don't have the asset in a living trust. Payable on death is sometimes called transfer on death and is similar to a Totten trust, a misnomer since it is has no trust document. All three of these ways of titling bank certificates of deposit, checking accounts, savings accounts, U.S. savings bonds and U.S. Treasury bonds achieves the same end. They provide total control during your lifetime and immediate and unencumbered transfer of ownership to your beneficiary upon your death.
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