As you begin to explore estate planning, it’s likely you’ll come across options like revocable living trusts and wills. At first glance, they can appear similar, but there are key differences that can have a significant impact on whether one is a better choice for your needs than the other.
Revocable Living Trusts: What They Are and How They Work
A living trust is a legal arrangement that lets you transfer ownership of certain assets to a trust account. To create a living trust, you have to assign a trustee who is responsible for protecting those assets for the beneficiaries. The assets in the trust will be distributed at a time of your choosing or after your death.
A revocable living trust is the most common type of trust used in estate planning because it gives you the opportunity to make changes to it during your lifetime. You can change beneficiaries, add or remove assets, and even revoke the trust completely. It’s also possible to assign yourself as trustee.
Wills: What They Are and How They Work
Also known as a last will and testament, a will is a legal document that outlines your wishes for the distribution of your assets after you die. You’ll assign an executor, who’ll carry out the instructions that the will outlines.
With a will, you can be as broad or detailed as you want. You’re able to leave everything to a single beneficiary, or you can assign assets to many beneficiaries. You can also leave instructions for the care of pets or dependents.
Which is the right choice for you?
Revocable living trusts and wills have some overlap, but they are distinct. One of the most important differences is when and how they take effect. A revocable living trust goes into effect the moment you sign it and fund it, while a will only goes into effect after your death.
Keep in mind that with revocable living trusts, you still retain control over the assets, so they’re still considered part of your estate for tax purposes. When these assets get distributed, your beneficiaries will have to pay estate taxes.
Perhaps the most frustrating part of dealing with a will is the probate process, which involves settling the estate with creditors. Only after that can the assets be distributed to beneficiaries. Because probate is a public procedure, predatory creditors beneficiaries may not be aware of can emerge.
With revocable trusts, you can reduce the expenses and delays that the probate process causes. This makes it easier for your beneficiaries to claim the assets you want them to have. Trusts also protect your privacy, helping your beneficiaries avoid unscrupulous creditors.
A revocable living trust takes more work to set up, however. You have to first set up the trust’s legal structure and then retitle all of the assets you want to include in the trust. Wills are much easier and quicker to set up, which can be important in emergency situations.
Making the Right Estate Planning Choice in Orange County, CA
Estate planning can seem like an overwhelming process that might only be worthwhile for the wealthiest percentage of the population. However, it’s crucial for everyone who has any type of assets to offer heirs to engage in estate planning. By turning to an estate planning attorney, you can get the guidance you need to make the right choice.
At OC Wills & Trusts, we provide the help you need at any point in your estate planning journey. If you’re ready to get help from an estate planning lawyer, our attorneys are here to help.
