Living Trust v. Last Will and Testament
An inter vivos trust, commonly known as a living trust, is used to dispose of property during a person’s lifetime. A last will and testament transfers the ownership of property after a person’s death. These legal instruments have significant differences such as their transfer, revocability, privacy, probate and costs.
Transfer of Property into the Trust
The conveyance of a trust occurs when the trust is executed. The person who owns the property, also known as the settlor, transfers ownership of the property to a trustee for the benefit of the beneficiaries. The trustee grants the benefit of the property to the beneficiary according to the terms of the trust. The settlor often names himself as the trustee while he is alive. The terms of the trust determine the trustee upon the settlor’s death.
A person who makes a will, or testator, retains ownership of the property until he dies. Ownership of the property transfers to the beneficiary upon the death of the testator. A will may specify an administrator to act on the testator’s behalf. It can also provide other instructions regarding the estate, such as appointing a guardian to take custody of the testator’s minor children.
Revocability of an Inter Vivos Trust
A trust may or may not be revocable, depending on its specific terms. The settlor can cancel a revocable trust, although this may not protect the property from bankruptcy or creditors. The primary disadvantage of a revocable trust is that the beneficiary may have to pay a gift tax. A will can be revoked by the testator at any time before his death. He need not notify anyone when changing the terms of the will, not even the beneficiaries.
A trust can generally be administered without the supervision of a court, allowing this process to be completed in private. The administration of a will tends to be much more public, since it needs to be probated. This means that the beneficiaries, assets and claims against the estate are a matter of public record. The primary exception to this issue occurs when the value of the estate is less than the no-probate threshold, which varies by state.
A trust avoids a second probate when some of the property is outside the settlor’s state of residence. A disputed trust does not automatically require court supervision. A will requires a second probate for out-of-state property. Court supervision is normally required when beneficiaries or creditors challenge a will.
A trust generally has greater preparation, funding and management costs than a will. However, it does not have the probate costs required by the administration of a will. The disposition of an estate can therefore avoid all probate costs by placing the entire estate in a trust. In addition, the transfer of property to the beneficiaries is much less time-consuming where a trust is in place.
Every case presents unique facts and no outcome can be guaranteed by an attorney. Give my office a call to discuss your particular needs or concerns.
Law Office of Ryan C. Young, PLLC | Richmond, Virginia | Estate Planning