Wills and Living Trusts – a Comparison
In my last posting I briefly discussed living trusts. Here is a more detailed description of how they differ from wills. Note: some of the information is North Carolina specific, but in general the comparison should be useful for residents of any state.
Inter Vivos Revocable Trust
Cost: about $750 to $1500.
Management required: the Trustee must manage the assets in the trust and be responsible for filing any tax returns.
Trustee: You can serve as the trustee of your own trust during your life. At your death, or if you become incapacitated, the next trustee you have named will take over, avoiding the need for a guardian in many cases. A bank or any competent adult can serve as trustee.
Compensation of Trustees: Banks generally charge a percentage of the trust assets as a fee, in accordance with their published fee schedule. Attorneys or others serving as trustee are also generally paid a percentage of the trust assets. An advantage of having a family member serve as trustee is that the family member might not charge a fee.
Probate: Assets placed in a trust are not subject to probate. This saves time, trouble and money by eliminating court costs and procedures. However, in many estates the savings is not more than a few thousand dollars.
Privacy: a living trust does not become public, nor does a listing of trust assets.
Estate taxation: Revocable trusts do not save estate taxes. However, estate taxes apply only if your assets exceed $2,000,000.
Income taxation: During your lifetime, a separate tax return for the trust generally not required, and all income is taxed to you. Otherwise, income earned on the trust assets but kept in the trust is generally taxed to the trust, while income that is paid out to a beneficiary of the trust is generally taxed to that beneficiary. Payments of principal are not subject to income taxation.
Cost: about $200 to $750.
Management required: no separate management during life is required. But if you become incapacitated, a guardian generally must be appointed to administer your assets.
Trustee: a trustee is not required during your life. At your death, a personal representative will administer your estate. You can, however, have a trust contained in your will.
Compensation: since there is no trustee acting during your life, none is required. However, the personal representative of your estate or a guardian is entitled to be paid a fee.
Probate: most of your assets will be subject to probate. Some exceptions are assets with a named beneficiary, such as retirement benefits or life insurance, and jointly-held assets with right of survivorship, such as certain bank accounts. The court charges a fee of $4 for each one thousand dollars of assets, up to a maximum of $6,000.
Privacy: none – a will and lists of the assets become public record.
Estate taxation: assets subject to probate are not automatically subject to estate taxation. Estate taxes apply only if your assets exceed $2,000,000.
Income taxation: a will has no lifetime income tax implications.