Understanding the Key Differences Between a Will and a Revocable Living Trust

Estate planning can seem complicated, but understanding the difference between a Will and a Revocable Living Trust is a great first step. Let's break down these essential documents and how they help you control your assets.

Wills vs. Revocable Living Trusts: What's the Difference?

Both a Will and a Revocable Living Trust are legal documents that allow you to dictate how your assets will be distributed after your death. However, they operate in fundamentally different ways.

The Last Will and Testament

A Will is a legal document that specifies how your property should be distributed upon your death. It also allows you to name guardians for minor children and appoint an executor to manage your estate.

Key Features of a Will:

• Probate Required: For a Will to be enacted, it typically goes through a court process called probate. Probate can be time-consuming, public, and costly, as court fees and attorney fees can reduce the value of the estate.

• Effective Upon Death: A Will only becomes legally effective after your death, and after it has been validated through the probate court.

• Guardianship: A Will is the only document that allows you to name a guardian for minor children.

• No Incapacity Planning: A Will does not provide for the management of your assets if you become incapacitated during your lifetime.

The Revocable Living Trust

A Revocable Living Trust is a legal entity that holds ownership of your assets during your lifetime. You, as the "grantor," transfer your assets into the trust. You also typically act as the "trustee," managing these assets for your own benefit, and name "beneficiaries" who will receive the assets upon your death.

Key Features of a Revocable Living Trust:

• Avoids Probate: This is one of the biggest advantages. Assets held in a properly funded Revocable Living Trust generally avoid the probate process, saving time, money, and maintaining privacy.

• Effective During Lifetime: A trust is effective immediately upon creation and funding. This means it can also provide for the management of your assets if you become incapacitated, as a successor trustee can step in without court intervention.

• Privacy: Unlike probate, which is a public record, the details of a trust remain private.

• Flexibility: As the name suggests, a revocable trust can be changed or revoked by you at any time during your lifetime, as long as you are mentally competent.

  
  

Assets That Pass by Contract: Beneficiary Designations

It's crucial to understand that not all assets are controlled by your Will or Trust. Certain assets pass directly to named beneficiaries by contract, regardless of what your Will or Trust states. These include:

• Life Insurance Policies: The proceeds typically go directly to the beneficiaries you've named on the policy.

• Retirement Accounts (401(k)s, IRAs, etc.): The funds in these accounts are usually distributed to the designated beneficiaries.

• Annuities: Similar to life insurance, these have named beneficiaries.

• Transfer-on-Death (TOD) or Payable-on-Death (POD) Accounts: These are bank or brokerage accounts where you can name a beneficiary to receive the assets directly upon your death, bypassing probate.

  
  

Always review your beneficiary designations regularly, especially after major life events like marriage, divorce, or the birth of a child. An outdated beneficiary designation can lead to unintended consequences.

Where to Draft Your Estate Planning Documents

You have a few options when it comes to preparing your estate planning documents:

1. Online Estate Planning Services:

For those with simpler estates, online platforms can be a convenient and more affordable option. They often provide templates and guided processes to create Wills, Trusts, and other essential documents.

• Rocket Lawyer: Provides legal documents and access to on-call attorneys for advice.

• FreeWill: Offers free online Will creation, with options to include charitable bequests.

• Trust & Will: Offers State specific wills and comprehensive estate planning documents for a nominal fee

Pros of Online Services:

• Cost-effective

• Convenient and accessible from home

• Good for straightforward situations

Cons of Online Services:

• May not be suitable for complex estates

• Lacks personalized legal advice

• State laws can vary significantly, and online services might not always catch nuances.

  
  

2. Local Estate Planning Attorney:

For more complex estates, specific family situations, or simply peace of mind, consulting a local estate planning attorney is highly recommended. An attorney can provide personalized advice, ensure your documents comply with state laws, and help you navigate intricate legal and tax considerations.

• Referrals: Ask friends, family, or other professionals (like financial advisors or accountants) for recommendations.

• State Bar Association: Most state bar associations have a lawyer referral service.

• National Association of Estate Planners & Councils (NAEPC): You can search for accredited estate planners in your area.

• Online Directories: Websites like Avvo, Nolo, and FindLaw list estate planning attorneys by location.

Pros of Using an Attorney:

• Personalized legal advice

• Ensures compliance with state-specific laws

• Can handle complex situations (e.g., blended families, special needs beneficiaries, high net worth)

• Provides ongoing support and updates as laws or your circumstances change.

Cons of Using an Attorney:

• Generally more expensive than online services.

Whether you choose an online service or a local attorney, the most important step is to start your estate planning. It's a gift to yourself and your loved ones, ensuring your wishes are honored and reducing potential stress during a difficult time.

Summary

Ultimately, both a Will and a Revocable Living Trust are vital tools for ensuring your assets go to the people you choose. A Will is essential for naming guardians for minor children but generally requires the public and often costly process of probate. A Revocable Living Trust is ideal for avoiding probate and provides lifetime management of assets if you become incapacitated. Crucially, don't forget to check your beneficiary designations on accounts like life insurance and retirement funds, as these contractually pass directly to the named recipients, often overriding your Will or Trust. Whether you choose the guided process of an online platform or the specialized advice of a local attorney, taking the step to complete your estate plan is the most important decision you can make for your peace of mind and the security of your loved ones.