Revocable Living Trust or Last Will and Testament? Advantages, Disadvantages and Other Considerations
Trusts and Wills are legal documents that protect your assets and ensure that they are distributed according to your wishes. While the end goal might be similar for both documents, they each have their pros and cons that you may want to consider. Picking the right one will help your loved ones avoid probate, and estate taxes, as well as keep family matters private. One of the issues that you may consider in this planning is whether you want to create a living trust in addition to a will or instead of a will. The decision is a very personal one and will depend on your specific needs.
The Advantages of Wills
They are generally cheaper to create
Wills are less expensive to create than a trust. They can be created relatively easily and don't require as many legal steps as creating, executing and funding a trust does.
You can appoint guardians for minors
One of the most important advantages that wills offer is the ability to appoint temporary and permanent guardians for minor children. The legal document will go into effect right after your passing.
Employee stock options are available
If you have employee stock options from a long career working within a company, wills make it possible for them to be transferred.
The Disadvantages of Wills
Wills are not private
Wills will become public record after you apply for probate. This means that the distribution of the assets to beneficiaries will not be private (this also includes your stipulations).
The time when it becomes effective
For some, this might be a dealbreaker. The will only becomes effective after passing away. This means that you can't oversee the direct distribution of the assets.
Wills are easy to contest in court
A significant downside of wills is that they are easily contested in court. They are typically not as "bulletproof" as trusts.
The Advantages of Trusts
Avoid probate court
By choosing to create a trust instead of a will, you can avoid probate court. The probate process is expensive, and it takes a long time.
Privacy for your family
The trust will not be public record. Therefore, no one will know how your assets are distributed to the beneficiaries or the stipulations that you included for them.
More control over your estate
With a trust, you will have more control over your assets. You can choose to remove or add beneficiaries at any moment you see fit.
The Disadvantages of Trusts
The cost
While a trust provides you with more options in terms of avoiding probate and keeping family matters private, creating one is more expensive than a will. You will have to create multiple accounts (depending on the number of beneficiaries) and fund them.
Difficult to create
Creating trusts requires more paperwork than a Will.
You can't pass employee stocks options
If employee stocks options represent a significant percentage of your estate, creating a trust might not be the best decision. Only a will allows transferring employee stock options.
Final Words
When comparing wills vs. trusts, there is no such thing as a clear "winner." Each is ideal for different types of situations. It's just a matter of determining which one is best suited for your specific needs.