The big difference is that a will becomes effective only after you die and your will has been entered into probate. A living trust bypasses the costly and time-consuming process of probate, enabling your successor trustee (who fills basically the same role as an executor of a will) to carry out your instructions as documented in your living trust at your death, and also if you’re unable to manage your financial, healthcare, and legal affairs due to incapacity.
Living trusts are available from estate planning attorneys, off-the-shelf software, and online resources, such as Nolo. Typically, the cost to create a living trust is between $1,000 and $3,000.
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Who should get a living trust?
A living trust is most appropriate for individuals who have complex financial or personal circumstances, such as substantial assets, a blended family, closely-held business interests, or property in other states.If you have a complex situation or are uncomfortable trusting your personal knowledge and judgment with such important issues, you might consider hiring a qualified estate planning attorney to draft this document. Yes, you’ll spend more money, but you can rest assured knowing that your wishes will be carried out exactly as you desire.
A living trust can also be a very effective tool for an unmarried individual, regardless of financial situation, presuming that the individual’s desires can’t be fulfilled by utilizing beneficiary designations and the joint with rights of survivorship titling option and powers of attorney.
Types of living trusts
The two types of living trusts are as follows:-
Revocable living trust: With a revocable living trust, you transfer your assets into the ownership of the trust. You retain control of those assets as the trustee of your revocable living trust. You can change or revoke the trust at any time you want. The assets in the trust pass directly to your beneficiaries without going through probate upon your death. However, neither wills nor revocable living trusts avoid or minimize estate taxes.
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Irrevocable living trust: An irrevocable trust allows you to permanently and irrevocably give away your assets during your lifetime. After you give away these assets, you have relinquished all control and interest in these assets. Due to that fact, these assets are no longer considered part of your estate and aren’t subject to estate taxes. As you likely imagine, an irrevocable trust is appropriate in only extremely rare circumstances, such as when you have more money than you or your spouse could ever use. Your beneficiaries would benefit at Uncle Sam’s expense if you utilized an irrevocable trust to reduce your taxable estate before your death.