One of the most common questions that people ask when they start thinking about preparing an estate plan is whether they need a Living Trust or if a Last Will and Testament is sufficient for their needs. Almost without fail people follow that question by asking why a Living Trust is more expensive to prepare. The answer to both those questions turns on the differences between a Living Trust and a Last Will and Testament.
A Last Will and Testament is designed to transfer an individual’s assets after death. If a Last Will and Testament is utilized than the individual owns all of their assets during their lifetime. When they die the Last Will and Testament nominates an individual or individuals to pay bills and distribute assets pursuant to the instructions in the Last Will and Testament. Nonetheless, because title to the assets remains with the individual, who is now dead and cannot sign deeds or bills of sale, the court process known as probate is necessary to transfer the assets. Probates can be extremely time intensive, lasting several months to several years, and can be extremely costly in court and attorneys’ fees. However, since a dead person cannot transfer their assets, it is necessary to undertake the probate process to get court authority for the transfer of assets.
Like a Last Will and Testament a Living Trust is designed to transfer an individual’s assets after death, however, it accomplishes that task by creating a Trust to which the assets can be transferred during the individual’s lifetime. Essentially, at the time an estate plan is executed additional documents are prepared and signed that create a Trust. The individual then transfers their assets, for example, their home, cars and bank account, to the Trust. Since the Trust is controlled entirely by the individual throughout their lifetime there is no real disruption to the individual’s daily life. When the individual dies, the Trust continues on with the only real change being that control of the Trust transfers to the individual or individuals identified as Successor Trustees. The Successor Trustees can then pay debts and distribute assets pursuant to the individual’s instructions. The primary advantage to creating and utilizing a Trust as an estate planning device is that it allows an individual’s loved ones to avoid the cost, time and hassle of completing the probate process. Because the Trust owns the assets and continues to exist after an individual dies, there is no need for months and years, not to mention thousands of dollars in attorneys’ fees, to be expended obtaining court authority to distribute assets owned by someone who is dead.
The cost for having a Last Will and Testament prepared is different than having a Living Trust prepared. As one can imagine, the creation of a Living Trust necessitates the preparation and execution of additional paperwork. It also requires some basic education on the manner in which to title assets during an individual’s lifetime. Accordingly a Living Trust is slightly more expensive to prepare, nevertheless, it saves the costs associated with probate down the road. A Last Will and Testament is easier to prepare and thus is less expensive than a Living Trust, however, following the individual’s death, the costs associated with probate often far exceed the cost for preparing a Living Will.
Thus, whether a Living Trust or a Last Will and Testament is appropriate for you depends upon the long term goals that you are trying to accomplish with your estate plan and your personal circumstances, including how much you are willing to spend for the preparation of your estate plan.