When is a Living Trust More Appropriate than a Will?

At this point, we’ve discussed the basics of both living trusts and wills, but is there ever a time when one is more appropriate than the other? The truth is that the answer to this particular question varies from state to state—what works in one place may not work in another. Some states may be vastly different from one another. 

According to the law professionals at Fleming and Curti, PLC in Arizona, most individuals do estate planning for one or more of the following reasons:

  1. To minimize taxes. Sometimes, though not always, this can mean estate taxes.
  2. To avoid probate, or (in more general terms) to simplify matters for their heirs or successors.
  3. To control the way their assets are used after death.
  4. To make it easier for someone to handle their affairs in the event of their own incapacity or death.

In each of the cases above, a trust is better to handle those tasks than a will and Powers of Attorney. However, trusts are normally a little more expensive to begin (you can assume the lawyer will charge 3 to 10 times as much for the preparation and “funding” of a trust as compared to a will and powers of attorney) and involves a little extra effort. So the question essentially becomes one of cost vs. benefit. The answer to that—whether or not the extra expense and effort in creating a living trust will generate enough savings of time or money for heirs is generally unclear for a majority of folks.

For some, the trust is the right way, unquestionably; for others, the trust may be too much legal help for dealing with a non-existent issue.

Let’s look at how this question of trust vs. will and how it relates to the four reasons we mentioned earlier.

Taxes. Very few people need to worry about estate taxes these days, especially in Arizona (where there is no state estate tax at all). So with a federal exemption set at $5 million (pre-2018) and up to $11.18 million (post-2018), only a small portion of people have estates large enough to make any decisions on the basis of tax effect. 

Probate Avoidance. The probate process in Arizona isn’t as complicated as the reputation might suggest. It’s also not quite as expensive. Even so, many people will agree that even a modest cost of probate and time in lawyers’ offices would be something to avoid. In Arizona specifically, the cost of preparing a living trust and funding it will nearly always be less than the cost of probating your home later, but not always by much.

Control. This is what you may want to do with your funds, even after death. No matter why you may want want to save the funds, you can do so by putting that money in a trust with someone who has been instructed on exactly how you wish the money to be used. However, you don’t have to create a living trust to put the money in a trust. You can create one in your will—something lawyers call a testamentary trust. However, it will cost more, and the difference between the cost of a will (with a testamentary trust) and a living trust will be smaller. So if you need, or would prefer, to control the use of your funds after death, a living trust may suit you better.

Your own incapacity. This is when you should sign a power of attorney. It is one of the most important documents of the estate plan, but it can also be the most dangerous. Court costs are almost always high and it can come with a significant invasion of privacy.

We could spend much more time explaining all the ins and outs of what would be better for which situation and when, but this article was meant to give more of a general overview. You may want to consider a living trust if you:

  • Are older
  • Are not married
  • Are wealthy
  • Have children who are not children of your spouse
  • Have complicated assets, and especially if you
  • Have real estate in more than one state or
  • Have beneficiaries with special needs, inability to handle money or other similar situations.

As always, don’t put too much stock in the information we’ve given, or apply them to your own personal situation without first seeking advice from a legal authority. Ask questions and share concerns with a lawyer, and ask them for a critical and thoughtful evaluation of your situation. That way, you’ll be able to make the choice that best benefits you as well as the loved ones you’ll leave behind.