Estate planning ensures your wishes are carried out, and your loved ones are provided for when you pass away. Two common estate planning tools are wills and revocable living trusts. But what is the difference between a revocable trust and a will?
While there are some similarities, revocable trusts and wills have some key differences you should understand before deciding which option best suits your estate planning needs.
Overview of Wills
A will is an estate planning document that lets you direct how your assets will be dispersed once you die.
With a will, you can name beneficiaries to inherit your property, designate an executor to oversee your estate, and provide instructions for how you want things handled after your death.
Some key things to know about wills:
- A will only take effect after you pass away. It does not impact your assets while you are still living.
- Your will must be submitted to probate court after your death. The court oversees validating the will and the distribution of assets.
- Wills are public records. The details of your will become available to the public during probate.
- A will does not avoid estate taxes. Assets distributed through a will may still be subject to federal or state estate taxes.
- You can modify your will at any time. Wills are revocable, so you can update beneficiaries or make other changes.
- With a will, you still own your assets. A will only dictate what happens to your property after death.
- Having only a will means your estate must go through probate. This can be time-consuming and costly.
While simple and inexpensive to create, it will have some downsides, like probate and lack of privacy. But for many, a will adequately handles their estate planning needs.
Overview of Revocable Living Trusts
A revocable living trust is a legal arrangement you can establish during your lifetime. You transfer ownership of assets to the trust, which a trustee for beneficiaries manages.
Some key features of a revocable living trust:
- A trust goes into effect as soon as you establish it. The terms dictate the management of assets during your life and after your death.
- Assets in a trust pass directly to beneficiaries upon your passing, avoiding probate. This allows faster distribution than with a will.
- Trust details are not public records. A trust preserves the privacy of your estate.
- You retain control over the trust and assets in it. You can modify, revoke, or terminate a revocable trust.
- Naming yourself as a trustee lets you continue managing assets in the trust. Successor trustees step in if you’re unable to do so.
- Titles to assets must be transferred to the trust for it to be effective. This involves retitling accounts, properties, etc.
- Trusts may provide some protection from creditors or for incapacitation. This depends on applicable state laws.
- Living trusts require more upfront work and cost to establish than a will.
For those with substantial assets or concerns about probate, a revocable living trust offers privacy and potential probate avoidance benefits. But trusts aren’t necessarily right for everyone.
Key Differences Between Revocable Trusts and Wills
When deciding between a will or a living trust, here are some of the main differences to consider:
When They Take Effect
A will only govern the disposition of your assets after you die, while a revocable trust starts functioning as soon as you create and fund it.
Probate
Assets passing through a will go through probate, which is not required for those in a living trust. Avoiding probate is a major benefit of trusts.
Control of Assets
With a will, you retain full control over assets until death. With a trust, you relinquish some control over assets transferred into the trust.
Privacy
Will become public records during probate. Trusts remain private documents and avoid probate.
Upfront Costs and Complexity
It costs more and can be more complex to establish a trust than a simple will. But trusts require less management long-term.
Incapacity Planning
A living trust can provide a framework for asset management if you become incapacitated. A will only take effect after death.
Tax Implications
Wills do not shelter assets from estate taxes. Certain trusts may help minimize estate taxes.
Flexibility
Wills are easily changed and revoked. Irrevocable trusts can’t be changed once set up. Revocable trusts are flexible but require more work to modify.
Asset Management
Living trusts allow proactive management of assets if you wish. Will only direct disposition of assets after passing.
Considering these key differences alongside your specific estate planning goals and needs will help determine if a will or living trust is the better fit.
Who May Benefit From a Revocable Living Trust
While a will is sufficient for basic estate planning in many cases, some situations may make a revocable living trust more appealing:
- You own substantial real estate or financial assets.
- You have privacy concerns and want to avoid probate.
- You own property across multiple states.
- You want to plan for possible incapacity with ongoing asset management.
- You have taxable assets you want to shelter within estate tax exemptions.
- You will be unavailable for a period and need someone to oversee assets.
- You have dependents with special needs requiring asset management.
- You expect complications with will validation or asset distribution.
For simple and more modest estates, a living trust may be overkill. However, those with complex assets and needs often benefit from establishing a revocable trust.
Using Both a Will and Trust Together
Having both a revocable living trust along with a will is a common estate planning strategy. This integrated approach combines the perks of each:
- The trust becomes your primary estate planning tool for most assets during life and death.
- The will acts as a safety net to cover any stray assets not already in the trust.
- The unified plan streamlines asset distribution upon passing while minimizing probate.
- If the trust is ever terminated, the will ensures that the remaining assets still get distributed.
By using a living trust as the centerpiece and coupling it with a will, you get robust protection that covers all your bases.
Setting Up a Trust in Texas
The rules for setting up a valid trust differ by state. Here is an overview of what’s required to create a revocable living trust in Texas:
- Name the trust with clear wording like “The [Your Name] Revocable Living Trust.”
- Designate one or more trustees to manage the trust and its assets.
- Name yourself as the trust maker and primary beneficiary during your lifetime.
- Appoint successor beneficiaries who will inherit trust assets when you pass.
- Indicate trust provisions like powers of appointment, asset distribution, etc.
- Execute the trust according to requirements like notarization and witnessing.
- Formally fund the trust by retitling assets like bank accounts and real estate in the trust’s name.
- Make sure to keep trust records organized and update documents like deeds when necessary.
Following Texas guidelines ensure your trust will stand up legally and work as intended. Consulting a local estate planning attorney is highly recommended when establishing any trust.
Which Is Right for You: Will or Revocable Trust?
Deciding between a will and a revocable living trust depends on your personal situation and planning objectives. Consider factors like:
- Your total assets and number/type of beneficiaries
- Whether minimizing probate is a priority
- If you have real estate or property across multiple states
- Whether you need ongoing asset management if incapacitated
- If reducing estate taxes would benefit your beneficiaries
- Your budget for creating and maintaining estate planning documents
For many people, a will provides sufficient estate planning to distribute assets after passing. But for larger or more complex estates, a living trust’s benefits, like probate avoidance, may make it the better choice.
Trusts require more upfront effort to establish but administer smoothly long-term. Weighing the pros and cons relative to your estate can determine which option best fits your needs and financial legacy.
Trust Us to Manage Your Estate
Estate planning can be a complex undertaking, but a revocable living trust provides a clear structure for asset management and distribution. Actively controlling how assets are organized, maintained, and divided among heirs offers peace of mind that your wishes will be honored.
With a properly crafted living trust, you can seamlessly transfer assets to chosen beneficiaries and perpetuate your financial legacy for generations to come. Contact The Titus Law Firm in Houston to help you craft an estate plan that secures your assets and cares for your family’s future.
Frequently Asked Questions
Q: How do I know if a revocable trust or a will is right for me?
A: The decision between a revocable trust and a will depends on your individual circumstances and goals. A revocable trust may be a better option if you have a large estate, want to avoid probate, or wish to provide for managing your assets if you become incapacitated. A will is generally simpler and more affordable but may still meet your needs if your estate is smaller and less complicated.
Q: Can I create a trust online?
A: Yes, it is possible to create trust online. Some various online platforms and services offer templates and guidance to help you create a legally valid trust. However, it is important to ensure that the trust document meets all the legal requirements of your specific jurisdiction.
Q: What is the difference between a living trust and a will?
A: A living trust and a will serve similar purposes – they both allow you to dictate how your assets should be distributed after your death. However, a living trust has the added benefit of allowing you to avoid probate, which can be time-consuming and costly. A will, on the other hand, must go through the probate process.