17 April 2007 -  Jacksonville, Florida USA                                        

Will vs. Living Trust

This topic has a wide range of information but I will just go over the main points between these two equally very important documents.    Parents should contemplate on worst-case scenarios.  Yeah it's awful to consider, but what if  you and your spouse died at the same time and you haven’t named guardians for your kids in your Will? You may be setting your family up for a costly, even bitter, custody process.

Everyone should have at least a Will, even if you don’t have kids. Believing that everything the two of you own will pass automatically to the surviving spouse when one of you dies is a risky proposition. Your property could be distributed according to the state’s inheritance laws instead of going directly to your surviving spouse. Better safe than sorry.

A Will is a document that lays down all your wishes on how your property or assets are going to be distributed as well as designates guardians for your children after your death.

A Living Will has nothing to do with your property or children but only your election concerning life-prolonging procedures in the event of your permanent illness or unconsciousness where death is imminent. 

A Living Trust is a legal document where you gave consent to someone as trustee (usually a trusted individual or bank). A Trust can help you avoid a court hearing if you become incompetent, unable to provide for yourself or if you die.  Your trustee can manage your assets efficiently as well as your beneficiaries, such as small children, parents and etc.

A Will is not technically a legal document; it is a statement of your wishes.  Without a Trust, determining the distribution of the assets then becomes the responsibility of a probate court.

Probate is a legal process of administering a deceased person's estate without a trust. The court appoints either an executor named in the Will (or an administrator if there is no Will) to administer the process of collecting the assets of the deceased person, paying any liabilities remaining on the person's estate and finally distributing the assets of the estate to beneficiaries named in the Will or determined as such by the executor.

I personally asked our estate lawyer if we should set up a trust in addition to having a Will; his answer was it depends on the size of the estate. He says there is really no need to draw a Trust if the total estate is under the current estate tax exemption which is 2M dollars and the fact that we live in Florida (no probate law in Florida)  we really do not need to set up a Trust unless we are willing to spend thousands of dollars for it.  

A tax levied on an heir's inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law. 

Year of Death:	Filing Requirement:
2002 and 2003		$ 1,000,000
2004 and 2005		$ 1,500,000
2006, 2007, and 2008		$ 2,000,000
2009		$ 3,500,000

 The estate tax is mostly imposed on assets left to heirs, but it does not apply to the transfer of assets to a surviving spouse. The right of spouses to leave any amount to one another is known as the "unlimited marital deduction".  However, when the surviving spouse who inherited an estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit

Well, there are arguments as to why a Will is not enough.  Suze Orman is one big proponent of having a Will and a Trust in hand.  Read her book titled “Women and Money” and you’ll find out her argument as to why a Will and Trust are two of the must-have documents. Even though she is not an estate lawyer herself, I found her propositions and examples to be more potent. I highly recommend you read her book.  It's very informative and straightforward. I just started another retirement investment portfolio after reading her book.

A Trust is much simpler to settle as the assets do not have to go through probate.  It also can make it easier to manage your affairs if you become mentally incapacitated while alive.  Plus a trust protects your privacy; unlike a will, a trust is confidential.

Wills are regulated by a state government. As a result, what constitutes a valid Will in some states means nothing in another. Because there is no national uniform law on what must be in Wills, you need the help of your estate lawyer. 

The bottom line, setting up a Will is much simpler and a lot less expensive than setting up a Trust so you need to weigh the added cost and complexity today vs. making it easier for your heirs tomorrow.

Will - Advantages and Disadvantages

            Advantages 

•   Setting up a will is much simpler and less expensive than setting up a living trust

•   Creditors face a final cut-off date for bringing claims against your estate.

•   You may name a guardian for your minor children in a will.

•   You do not need to transfer any property to another entity in order to create a will or make it valid.    

Disadvantages

•   Upon probate, a will becomes a matter of public record.

•   While you may appoint whomever you wish to act as executor of your will,
     it is usually the probate lawyers  who control that actual distribution of your property.
     This can be both expensive and unpleasant.

•   Probate, which is necessary for the implementation of your will, can be both costly and slow.

•   A Will does not provide for transfer of management of your assets or property
     if you should become physically or mentally incapacitated.

Trust - Advantages and Disadvantages

              Advantages

 •   A living trust is a cost-saving device: in most states, it allows you to avoid the expense and
      delay of probate proceedings, which can take up to 3 years to complete and
      eat up 10% of the value of your estate

 •   If you own property in another state, a living trust eliminates the need to probate that property in that state.

 •   A living trust can immediately transfer management of your property if you
      become incapacitated either physically or mentally.
      There is no need to go to the court to appoint a guardian or conservator.

•   A living trust protects your privacy; it remains confidential and does not become a matter of public record.

•   A living trust enables you to name someone you trust to manage Trust property for young beneficiaries.

•   There is no need to hire a lawyer when the time comes to distribute your estate.

Disadvantages

          •   Setting up the trust requires quite a bit of initial paperwork and can be very expensive.  

•   Setting up the trust also requires you to transfer ownership of all the property you wish to place in the Trust.
     This may include revising title documents which can be a big hassle on your part.

 •   Creditors do not have a final cut-off date for bringing claims against your Trust.

 •   You cannot designate a guardian for any minor children in a Living Trust
      (but this may be done easily in a Will that supplements your Trust).

So if you choose to create a Living Trust, you should also create what is called a pour-over Will. It provides for the distribution of any property that is not included in the trust plus it allows you to name a guardian for any minor children.

References:
        Jeff Boyd, MA, CFP
        David Andrews, PA
        Personal Finance by Kapoor, Dlabay, and Hughes
        Women and Money by Suze Orman
        Personal Finance and Investing MSN Money
        Yahoo Finance
        IRS.gov
        Investopia.com