This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
Take the squabbling between siblings you've had to endure and referee as a parent. Now multiply it times age and money. That might give you some idea of the need to make your final wishes clear when the time comes to divvy up your assets.
No matter how well a family gets along, the process of settling an estate can be trick or messy -- especially if there are large sums at stake. This makes it critical that your instructions are clear, and it's usually smart to make your plans long before they need to be set in motion. Two of the most popular ways to settle your estate are through either a will or a living trust.
A will is also called your last will and testament. It instructs the executor of your estate how to distribute any assets to your beneficiaries after your death. It's typically a simple legal document when compared with a trust.
A trust, meanwhile, empowers you to transfer your assets at any time -- including when you're living, thus the phrase "living trust" -- however you want to whomever you want. They're administered by a third party, usually called a trustee, and they can be a great way to help ensure your kids don't mismanage their inheritance, before or after you're gone.
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The biggest differences are that a will takes effect after you die and it often requires clearance by a probate court, depending on the state. A living trust is an account that is funded while you're still alive and thus requires no probate after you die.
By the way, a living trust and will are not mutually exclusive. The latter may well be necessary to cover what the former doesn't. Many people choose both as pillars of their estate planning.
Here are some pros and cons of each.
Where there's a will there's your way
One of the biggest advantages of a will is how easy it is to create one. Forms online can be filled out in an hour or so for simple estates. If you don't feel comfortable doing it yourself, you can hire a lawyer do it for you, generally for about $300 to $1,500 based on the complexity.
Wills can be changed much more easily than trusts, too, and they can include the ability to appoint a legal guardian in advance if your children are still minors.
As for drawbacks, wills are only effective upon your death, and then they're subject to probate, which can be costly and time-consuming. A final consideration: because the probate process is a court proceeding, your will eventually becomes a public record.
Leaving it up to trust
Living trusts generally come in two types -- revocable or irrevocable. The difference is simply whether you, as the grantor, can change it after it's created. Irrevocable trusts, as the name suggests, can't be altered once they've been established. You also can serve as the trustee and have someone else do it after you become incapacitated or die. Or you can choose a trustee now and stick with them.
Either way, a trust generally doesn't need court approval to distribute assets. It's also a private document.
Trusts also are generally more expensive to create than wills, from less than $1,000 for a simple document up to several thousand or more depending on the complexity and size.
And, to reiterate, when you put assets in a trust, the trust owns it, not you. Consider that as you decide between a revocable or irrevocable trust.
All's well when it ends well
You may be just beginning to plan your estate, or maybe you're updating your existing plan. Either way, understanding your options can provide some peace of mind that, after a working lifetime of saving and investing and hopefully a nice retirement, what's left will be distributed to your heirs and beneficiaries according to your wishes.
You'll notice I used a lot of qualifiers in this article, words like "generally" and "usually." That's because rules are rules, except when they're not. It's advisable -- a word I use here without qualification -- to consult an expert, such as a tax and/or estate planning attorney, for personalized advice specific to your needs, desires, and location.
