There are good reasons why you may be somewhat confused about wills and trusts. You are told that you should definitely have a will, and at the same time, the benefits of living trusts are touted by estate planning lawyers.
On one level, you do choose between a trust and a will as your primary vehicle of asset transfer. However, even if you make a living trust the centerpiece of your estate plan, you still need a will.
This may sound counterintuitive, but we will provide an explanation after we explain some of the benefits that living trusts provide.
Lifetime Control and Streamlined Estate Administration
When you have a living trust, you act as the trustee throughout your life, so you have total control of the assets that you sign over to the trust. You designate a trustee to succeed you in the trust declaration, and you name your heirs as the beneficiaries.
Since you are the trustor/trustee, you can change the terms at any time, and you can convey assets into the trust after it has been created. This type of trust is revocable, so you can dissolve the trust and take back direct personal possession of the property if you ever choose to do so.
A major benefit is the streamlining of the estate administration process. When a will is used to transfer assets, it would be admitted to probate, and a long and costly court proceeding would ensue.
When you have a living trust, the trust would be the owner of the assets, so they would be consolidated. This makes the trustee’s job easier, and best of all, the administration of a living trust is not subject to probate supervision.
Asset Protection for the Beneficiaries
You can include a spendthrift provision when you establish a living trust. It would become irrevocable after your passing, and the beneficiaries would not be able to directly assess the resources. The same dynamic would apply to their creditors, so the assets would be protected.
When you draw up the trust declaration, you can dictate the terms of the distributions. For example, you could instruct the trustee to distribute a certain amount each month with larger distributions when the beneficiaries reach certain age thresholds.
This is just one approach that can be taken, but the takeaway is the fact that you would have complete control over the distribution schedule.
Pour-Over Will and Guardian Designation
Now that we have provided a bit of an overview, we can focus on the specific question at hand. You should have a pour-over will if you have a living trust. When you execute this document, assets that were in your direct personal possession at the time of your passing would be poured into your living trust.
If you are the parent of a dependent child or adult, you should designate a guardian in your estate plan as a safeguard. You cannot do this in a living trust, so you would have to add a will to take this step.
Living Will
Regardless of the asset transfer vehicle or vehicles that you use, your estate plan should include a living will, which is an advance directive for health care. This document is used to state your preferences with regard to the use of artificial life-sustaining measures.
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