Will or Living Trust: What's the Difference?
By Betty Wang

Do you need a will or a living trust? What's the difference, anyway?

Chances are you have some assets, whether they be big ones like houses in your name, or small ones like that $20 bill in your wallet. Either way, most of us would like to have control over our belongings and the ultimate say in who gets them (and perhaps even how they're used) once we're gone.

Living trusts and wills are two very common documents that people will choose to draft when it comes to estate planning. Here's a general overview of how they're different:

Major Differences

As you probably know, a will is a document that describes one's preference about how one's estate should be distributed upon death.

So what's a living trust? For starters, a trust in general is a fiduciary relationship in which one person (the grantor or trustor) entrusts his assets with another person (the grantee or trustee). The trustee (who can be the same person as the grantor) then has the responsibility of transferring title of the assets to the trust's beneficiaries.

A living trust is simply a way to transfer assets to the trust during the trust creator's lifetime.

One huge difference between a living trust and a will is that a will must go through probate, while a living trust doesn't. Probate is the process that transfers property upon a person's death. Typically, it requires a court to get involved and to hear arguments from those who may contest the will. With a living trust, however, this often stressful process is avoided, because assets are technically transferred to the trust before the grantor's death.

Which Should You Pick?

When deciding whether to draft a will or a living trust, one factor to consider is whether you want your assets to be doled out after you die or during your lifetime. Wills only apply upon one's death, whereas living trusts only apply during one's lifetime.

Not everyone needs a living trust, but they can be useful for those with minor children who want their kids to receive certain assets upon reaching adulthood. Also, they are a good way to organize your assets if you have a particularly large, complicated estate.

Some people choose to have both a will and a living trust; others opt for one or the other. If you are without either, then courts will generally turn to your state's intestacy law by default, which may not necessarily pan out the way you hoped it would.

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Filing for bankruptcy can feel like a game of ping-pong with your lawyer.

You bring in bills;  she calls with questions.

You provide more documents;  she parses the documents.

When the ball is in your bankruptcy lawyer’s court, there’s other work for you  in preparation for your life after bankruptcy

Consider changing banks If you have a loan or other debt to your bank, the bank can help itself to funds in your deposit account to apply to what you owe it.

Usually, you stop making payments on dischargeable debts once you’ve made the decision to file bankruptcy.

Don’t leave your cash sitting in the bank, waiting to to be snatched by the bank. Open a banking relationship elsewhere with an institution you don’t owe money.

You don’t need to close the existing account, just keep no more money there than you’re willing to lose if the bank does a set off.

Review automatic bill payments If money is automatically taken from your account to pay recurring bills, ask yourself if each of those withdrawals are bills you want to pay if you are filing bankruptcy.

If not, stop the bleeding.

Sometimes, it seems the only way to stop such things is to close the bank account.  I’ve seen any number of cases where my client may stop the withdrawal for this month, but it pops back up next month.

On the other hand, if you end up changing banks to avoid an offset, like I talked about above, think about whether the automatic payments are for services you want to continue post bankruptcy.

If so, set them up at your new bank.

Shift to cash economy Once you’ve decided to file bankruptcy, any charges to your credit cards may be considered fraudulent.  After all, you don’t expect to pay off that card after bankruptcy.

Stop using credit cards.

A debit card is fine, since it just draws on your own money.  It isn’t a loan to be repaid. Again, if you have ongoing and necessary expenses regularly billed to your credit card, you need to make a new arrangement to pay those bills monthly.

Remember the checking account float The balance in your account on the day your bankruptcy case is filed is the number important to you and the bankruptcy trustee.  It is not the balance as shown on your check register.

Watch out, if you write checks on the eve of filing.  If they haven’t cleared the bank when your case is filed, they may never clear, as the trustee may demand the balance shown on the bank’s books on the day you file.

If you have things you have to pay before filing or if you are counting on spending down the bank account, get cashier’s checks.  The funds to buy a cashier’s check are immediately taken from your account; there is no float.

Smooth sailing Get these four things done before you file your case, and things in your financial life in general will go more smoothly.

Then you can graduate to my list of 8 must do tasks after you get your discharge.

Image courtesy of Flickr and Bluejeansummer.