Planning for the Future – Setting up a Living Trust vs. a Will

Damian Winther, CFP®
Sep 11, 2019 4:56:50 PM

setting up a living trustAt a neighborhood gathering this summer, as we watched the kids run around the streets getting sprayed by fire hydrants, our conversation slowly drifted from the countless activities our children are involved in to what we, as parents, do for work and fun. This year was particularly interesting as several of the couples began talking about estate planning, which is timely considering our neighborhood consists primarily of families with young children.  

It’s not uncommon to hear from clients in regards to an estate plan that they don’t have one. They know they should but they just haven’t gotten around to it, or maybe they created a will a long time ago but haven’t looked at it since. 

As a financial advisor, I feel privileged to help clients start, continue or finish a conversation around their estate plans. While I’m not attorney and can’t and don’t give legal advice, I can help prepare and provide clarity for your first visit with an attorney.

Estate Planning Attorneys work to draft wills, powers of attorney and health care directives. They may recommend a simple will or living trust depending on which best suits your needs. We work with our clients to help them understand which vehicle might be best in terms of meeting their legacy planning needs. Some variables to consider in this decision include the following:

Nature of Assets

It should be noted that retirement plans (i.e. 401Ks, IRAs, Roth IRAs and 403Bs) are all “individually owned”. They cannot be retitled into the name of one’s Trust. As such, for purposes of this article, when referring to living trusts, we’re specifically targeting non-qualified assets (i.e. brokerage accounts, checking and savings accounts, cars and other personal property) as well as real estate (i.e. homes, cabins, hunting land). 

[READ: 3 Steps to Creating a Digital Estate Plan]

Costs 

A will is generally less expensive to create when compared to a living trust. However, the costs associated with probate (i.e. settling your estate) are often higher when a will is used. General rules of thumb suggest that these costs are roughly five to seven percent of the estate value. While the costs associated with setting up a living trust are often higher on the front-end, at death there is typically no involvement by the court, which means post-death expenses are often much lower with the Living Trust option.

Privacy

Once a will is probated, it becomes public record along with any assets, inventory or accounts that are filed along with the probate proceedings. A living trust, on the other hand, is a private document that is generally not filed with the court. This helps the deceased individual(s) keep distribution preferences private. 

Disputes

There is a notice requirement with probating a will, so all heirs will have an opportunity to contest the will. With a revocable trust, there is no notice requirement so there is no forum to contest the trust provisions.

Distribution of Assets at Death

With a will, there is typically a four to five month waiting period before assets are distributed to heirs. This may result in undue pressure or financial hardship for the heirs to cover post-death related expenses. With a living trust, the distribution of assets is generally far more efficient and timely.

As a financial advisor, I work with our clients to help them feel empowered and knowledgeable about the financial decisions they are making each and every day. 

getting organized guide

Topics: Legacy Planning

Investment Advisory services offered through Birchwood Financial Partners, Inc. an SEC Registered Investment Advisor.

All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Opinions expressed herein are solely those of Birchwood Financial Partners, Inc., and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviser or qualified professional before making any financial decisions. We are not affiliated with or endorsed by the Social Security Administration or any government agency. The inclusion of any link is not an endorsement of any products or services by Birchwood Financial Partners. All links have been provided only as a convenience.