Revocable Living Trust vs. Will

If you're in the midst of estate planning and wondering about whether a revocable living trust or will is right for you, we've got you covered. Ahead, we'll take a look at their key differences and break down the basics of both. 

A will is an essential element of most estate plans. It's one way to specify how you'd like your assets divided up after you die, and it's the only way to establish guardianship for minor children.

A will, however, isn't necessarily the ideal way to pass on assets to your heirs, especially in the case of more complex estates, or when families wish to avoid the length, cost, and public nature of probate (the court-supervised, time-consuming legal process that's used to validate a will).

Unlike a will, a revocable living trust allows you to:

• Keep the assets held in trust from going through probate, maintaining privacy for that part of your estate (and for your heirs).
• Have a successor trustee manage the trust's assets if you become incapacitated, including paying bills and making investment decisions, if necessary. 
• Alter, amend, or revoke the trust without the need for court involvement, providing significant flexibility as your life changes.

A standard will is appropriate for many people, and essential if you have minor dependents. A revocable living trust may be a good choice if you're transferring a larger or more complex estate, or if you'd like to keep private financial details out of the public record. 

Let's take look a little closer at what a will can and can't do, and why you might want to incorporate a revocable living trust into your comprehensive estate plan.

A will (formally known as a last will and testament) is a relatively cost-efficient way to designate who will inherit your material and financial assets when you die. It can also:

• Name guardians for your minor children.
• Provide instructions on how to pay your debts and taxes.
• Make provisions for paying the living expenses of your family members and loved ones until the estate is settled.
• Name an executor to manage probate and ensure your final wishes are carried out.

The probate process varies widely depending on state law. California, Florida, and New York all have notoriously long and costly probate processes, while in some states they're far more streamlined. However, if you own assets in several states, your executor will have to initiate probate in each of those state courts, which can add time and expense. And because probate court filings become part of the public record, they may reveal information you'd rather keep private.

While you can use a will to transfer ownership of your assets, including personal items and sentimental property that are not valuable enough to transfer to a trust during your lifetime, they also have one major limitation: You have to die before a will takes effect. Therefore, a will has no legal effect during any period when you are incapacitated and unable to manage financial decisions.

There are many types of trusts, but the most common for estate purposes is a revocable living trust. Such a trust allows you to add, change, or remove assets, as well as make changes to the terms of the trust, at any time until your incapacity or death. Although ownership of assets is transferred to the trust, as trustee (or co-trustee with your spouse) you have complete control over them. Assets in a revocable trust are still part of your estate for tax purposes.

Not all assets are well-suited for inclusion in trusts during your lifetime. Retirement accounts, for example, should not be placed in a trust, as the transfer of ownership constitutes a distribution that could create unintended tax consequences. However, you can use beneficiary designations to transfer these assets either directly to heirs after you die or to the trust should you wish for the trustee to help manage distributions.

A revocable living trust is almost always paired with a pour-over will, which stipulates that any assets not included in the trust at death should be transferred to the trust and distributed according to its terms. It's mostly used as a failsafe for any assets you may have overlooked during trust creation. Assets in the pour-over will are subject to probate.

After reviewing the main differences between a revocable living trust and a will, you can see there are benefits to each. What's right for you depends on your unique situation and needs. Working with an experienced estate planning attorney can help you determine whether a simple will or a revocable living trust paired with a pour-over will makes the most sense for your distribution of assets.