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Living TrustIt is true, trusts generally cost more than wills to create and draft.   However, that is not the only time that you will spend money on your estate.   When you compare the cost of trusts and wills, you need to take into account these other expenditures, which includes any period of time when you are incapacitated and after you pass away.

The Key Takeaways:

  • A living trust is more comprehensive than a will because a living trust addresses incapacity situations and concerns, while a will is only concerned with your property after you pass.
  • Also, a living trust offers more flexibility with how you manage your assets while alive or incapacitated, and especially more flexibility of how you distribute your property to your heirs after you pass. A will can only distribute out property in lump-sums, which can subject your loved ones to burdensome income and capital gains taxes.
  • A living trust that is correctly drafted and completely funded avoids probate, which has its accompanying court costs, proceedings, and supervision. A will is always probated and is always public, so your personal and family information is also public and the court will always be involved on some level with distributing your property.

Instructions at Death and Incapacity

A living trust and a will both deal with giving your property to your loved ones after you pass.   However, a will only kicks in after you pass, and does not offer any protection if you are ever incapacitated (coma, dementia, etc.).   A living trust, however, is effective as soon as you sign the documents, and a properly prepared trust will help take care of you and your loved ones if you are ever incapacitated.

A Living Trust Avoids the Costs of Court Interference at Incapacity and Death

If you are ever incapacitated, a loved one will sometimes have to go to the court to be appointed a conservator to take care of your financial needs.   A living trust avoids this possibility because you can appoint an “Incapacity Trustee,” a person who steps into your place and manages your trust property to provide for your care.   You can appoint the Incapacity Trustee yourself, ensuring that it is someone you trust.   The court appoints a conservator, so even if you express your wishes of who to be appointed, there is no guarantee that will happen.

As already mentioned, a will does not, and cannot, benefit you if you are ever incapacitated.   It only becomes effective after you pass, so you will have to rely on a Power of Attorney (which sometimes is not accepted by financial institutions) or a guardianship, which is public and subject to court supervision.

What You Need to Know:

A living trust not only provides protections for you if you are incapacitated, but the dynamic is the same after you pass: you make the appointments, the transition is smooth, and the administration of your property is private.   A will always must go into probate after you pass, which is a public process and subject to court supervision.

Costs to Transfer Assets…Pay Now or Later

The term “funding a trust” means retitling your property so that your trust owns them.   You may do this, or you can have your estate planning attorney do that work for you.   The best time to fund your trust is when you are alive.   While there will be some cost involved with funding your living trust while alive, waiting until after you pass to retitle your property (either into your living trust or to your loved ones) may prove to be more costly, more time-consuming, and certainly will be happening during a more emotionally traumatic time.   If you fund your living trust now, you have more control over costs and the quality of the work, while if you wait, the cost may vary and there are other dynamics to consider.

Actions to Consider

  • You should find out how much it costs to probate an estate in Colorado. In Colorado, it is quite efficient, which saves on time and money.   However, it is a consideration to take into account.
  • You should talk with your estate planning attorney to learn about potential costs if you or your spouse become incapacitated. Of course, their estimate will be just that, as there is no way to know the length of incapacity, the level of required care, and other factors.   However, that very uncertainty can indicate to you the need to properly prepare for incapacity.
  • Take the total value of all your assets (including life insurance benefits), and divide them by the number of children you have that will inherit from you. That final number is generally how much they would inherit if you passed today.   Take some time to research income tax brackets and figure out the general range of income taxes your children would pay if they received their inheritance from you in a lump sum (which will happen if you use a trust).
  • Add all these estimates together (especially the first two) and combine them with the cost to draft a will or a living trust and compare the final totals. When you compare the total costs of a will or a living trust, you may find out that a trust is cheaper than a will.