A fellow attorney (and award-winning journalist) Deborah Jacobs authored the book, “Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide”. In her Forbes article titled “Estate Planning for Women (And the Men who Love Them)” she indicated the below question is a question every financially savvy woman should be able to answer.
What’s the difference between a will and a living trust?
There is widespread confusion about the differences between these two documents, and when you need one rather than the other. A common misconception is that living (revocable) trusts avoid estate taxes, which is not true. Both a will and a living trust can be used to transfer assets, but each has unique uses. For example, a living trust can hold assets for your benefit while you are alive-say, in case you are suffering from dementia. Only a will can be used to appoint a guardian for a child.
In some states, living trusts are also used to avoid or limit the cost of probate-the process through which a court determines that a will is legally valid and approves the distribution of assets covered by that will. Whether probate is costly or burdensome will depend on the state. Still, there are times when you might want to use a revocable trust to limit how much of your estate goes through probate or to avoid it altogether. For example, if you are concerned about publicity over your net worth or the identity of your beneficiaries, you might transfer assets through a trust-which, unlike a will, is not a public document. Someone leaving assets to a domestic partner might use a revocable trust, because it is harder for family members to challenge a trust than a will.
A living trust is also useful if you own real estate in a state that is not your primary residence. Real estate is governed by the probate rules of the state in which it is situated. Unless the property is in a living trust, an Illinois resident who has a home in Florida, for instance, would need to probate the property separately there.
Questions like this one can often trigger even more questions in your mind. Please accept my invitation to schedule a meeting where we can discuss this topic and others that might be relevant to your estate planning. Give my office a call to set a meeting.