Senior Impact

Living Trusts vs. Wills

The Federal Government allows a couple to pass all or a portion of their estate to heirs tax–free. These amounts change, so check with your financial advisor for current amounts. This can be accomplished with either a professionally prepared will or a living trust – depending on the circumstances.

Living trusts can be an effective estate planning tool but they are not needed by everyone. Funding a trustmeans transferring assets such as your home, car or bank accounts into the legal entity (trust) from your own name. Assets then are owned by the trust – not yourself. You or someone you designate then administers the trust as the trustee. If you name yourself as trustee, you still retain total control of those assets in the trust.

Unlike a will, the use of which alone still requires probate at death, a living trust is executed during a person’s lifetime. You can administer your own trust and upon your death or incapacitation, a named successor trustee will assume management. This prevents probate and/ or the need to apply for guardianship or conservatorship. There are both changeable and non-changeable (revocable and non-revocable) trusts, each of which have differing effects on taxes and government benefits.

Any tax deferred accounts, such as an IRA or 401(k), should not be placed in trust. The IRS considers this a taxable distribution and will charge you taxes and a 10% penalty.

Living Trust
• Can distribute my estate according to my wishes.

• A living trust allows for effective tax planning strategies with the maximum level of control.

• Avoid probate and/or attorney fees associated with probate.

• Probate is expensive and slow. Files are open to the public. Wills can be challenged by heirs who are legally entitled to notice of distribution.

• No cut-off for creditors to file claims.

• Avoids probate in each state in which property is owned.

• A named successor trustee assumes management upon your incapacitation without the need to petition the court to name a conservator to act for you.

• If your life insurance policy is owned by the trust and your estate is worth more than the allowable limit, the trust will have to pay taxes on the proceeds.

• Guardianship is avoided in the event of incapacity.

• Generally simpler and less time consuming than probate.
Simple Will
• Can effectively accomplish the same with joint ownership and designation within a will.

• There are many strategies which can be used to reduce or eliminate federal and state taxes with or without a living trust.

• You can hold property in joint names or Payable at Death accounts. Assets with named beneficiaries also avoid probate.

• It depends on the complexity of your estate. Trust administration can also be expensive, slow and complex. Very few people actually go to court to read files.

• No claims can be filed after one year.

• Your will must be validated by the probate court in each state in which you own property.

• Provides a safeguard against a dishonest heir or trustee. Probate court requires strict accounting and closely supervises estate administration.

• Life insurance proceeds are not taxable to an individual while that individual is living.

• A Durable Power of Attorney can accomplish the same thing without incurring the expense of setting up a Living Trust or having to fund it.