By: Atty. Curt Ferguson
One of the most basic estate planning questions people ask is: “Which is better, a will or living trust?” Or, having the impression that a living trust is more sophisticated or more expensive, “Do I need a trust or is a will enough?”
Let me dispense with a minor point first. How does each address you becoming disabled?
A will does nothing during life. “In the case of a will, it is necessary to prove the death of the one who made it, because a will is in force only when somebody has died; it never takes effect while the one who made it is living.” By contrast, a living trust can control how your property is managed for you during your disability and it can do this with greater specificity and privacy than powers of attorney.
But when it comes to disposing of your property on death, is a will or living trust better? Before answering that question, you need to ask this: “Do I want to provide benefits to my heirs beyond my death, or merely get my estate into their name?”
What benefits might you provide your heirs beyond just giving them the estate? One benefit is minimizing estate taxes: “If I predecease my spouse, put enough of my estate in trust for my spouse to use my estate tax exemption.” Another would be asset protection for your heirs: “Divide my estate into separate trusts for my children, where each child has control of their share but the inheritance will remain protected from threats like lawsuit or divorce.” Perhaps on death your estate should go in trusts for minors or heirs with life challenges such as disabilities or addictions. Other benefits could be giving a successor farmer preferred rights to lease the ground from the others, dividing property unequally, and giving special purchase options or rights.
So, do you want to provide such benefits to your heirs or merely get your estate into their name? If the latter, it won’t make much difference whether you use a will or living trust. You can set up asset ownership so most property ignores the will or trust. Name heirs as “transfer on death” beneficiaries or joint owners with rights of survivorship. Just be sure to leave a modest amount of cash to pass under the will or trust so your executor can pay your final expenses.
“Will or living trust?” becomes more relevant if you want to provide ongoing benefits to your heirs. These added benefits are best achieved by one or more trusts: not the living trust, but a trust that takes effect upon your death. The examples above include a tax-planning trust for spouse, asset protection trusts for adult children, minor or special needs trusts for those heirs, and farm preservation trusts, each taking effect upon your death. So, is a living trust or will better for creating these ongoing trusts?
Start here. Either a will or living trust can create the post-death trusts to providing the ongoing benefits for heirs. That is not the difference.
Do living trusts cost more to create? If you are going to provide ongoing benefits, those details must be drafted into your will or trust, so there should be little or no difference in cost. Either document is a complex legal drafting project.
If you plan with a living trust you must change deeds, beneficiaries, financial accounts, and business interests to your living trust in order for it to work. However, if your will is going to set up ongoing trusts for heirs you have to do much of the same work. Joint ownership of deeds and accounts, and beneficiary assets payable to individuals must be changed so those assets will be controlled by your will.
The process for carrying out a will on death is probate court. When you die, your will goes on public record. Do you want to give nosy neighbors access to your personal goals and objectives for your family farm? The living trust does not go on public record, preserving your privacy.
There are many technical steps that have to be taken to administer your living trust on death, largely parallel to taking your will through probate. The living trust won’t require court, and staying out of court will reduce the professional fees. The legal fees to administer your living trust should be significantly less than the legal fees when probating the will.
On the whole, living trusts cost less and do more in the long run.
 Hebrews 9:16-17 NIV
Enjoying our blog? Click here for more of The Legacy Pulse.
This article was originally published by the Prairie Farmer.