Choice of a Lifetime

Who will get your money, your property, or even your favorite pearls or pocket watch when you're gone? That's not something most of us like to dwell on. The evidence? Few Hispanics have the main documents used to distribute property after death: only one in four has a will, and one in five has a living trust.

Yet deciding exactly who gets what could relieve your loved ones of a considerable burden. After all, if you don't decide, the government will. "And that can lead to many headaches," says Luz Herrera, a California-based estate planning attorney.

Most people consider a will the best tool to make their wishes known to relatives and to have those wishes carried out. That may be true in many cases. But sometimes a living trust, alone or in combination with a will, offers a better solution, according to Herrera and other experts.

Wills

Wills are usually easier to set up and less expensive to create and change than living trusts. A will also lets you name a guardian to care for minor children after your death—something that's not possible with a living trust (unless a supplemental document is attached).

And if you have debts, a will provides another important benefit: creditors face a cutoff date for bringing claims against your estate. Creditors can't seek assets from beneficiaries once ownership is transferred to them. Should disputes involving beneficiaries and creditors arise, the courts supervise the resolution.

Living Trusts

For smaller estates, the setup and maintenance costs for a living trust may outweigh any after-death savings. But Dennis Sandoval, at the American Academy of Estate Planning Attorneys, explains that a living trust may be the more economical route, especially for people with estates exceeding $2 million for the 2008 tax year.

Also, says Sandoval, "A will speaks for you only after you die. A living trust can help you while you're alive." Like a will, a living trust sets out how your assets will be managed and distributed after you die. But a trust is also created to hold and manage your assets during your lifetime, and you can serve as the trustee and name a successor to take over upon your death. Then if you become disabled, a trusted advisor you've designated can take over—a feature that will save your beneficiaries the hassle and expense of going to court to appoint a guardian or conservator.

In addition, a living trust can sometimes minimize probate at death. Whether your estate would go into probate—the sometimes slow and costly court process that transfers assets after death—varies by state and usually depends on the size of your estate.

Still, there are important caveats regarding living trusts. You'll most likely also need a "pour-over" will, providing for the distribution of any property not included in the trust. You'll also need to transfer ownership of any property you want to include in the trust to the trust. So if you own your home, for example, you'll have to spend the money and time to transfer the title to the trust. And as you acquire new property, you'll need to decide whether to include it in the trust, and then update the trust.

Make It Personal

There are other caveats to keep in mind regarding both wills and living trusts. Neither will change how property you own with another person is distributed at your death. And neither will affect assets with a designated beneficiary, such as individual retirement accounts or life insurance. Also, you may still need other documents, such as those that let you name someone to make decisions for you should you become incapacitated.

All these factors and more need to be considered when plotting your course. That's why experts recommend that you review your situation and available options with your legal and tax advisors. Experts agree that, in all cases, family members bear the highest costs when their loved ones fail to make a plan.

Beware of scams!

Beware of "free lunch" estate-planning seminars and other scams that suggest that AARP endorses living trusts. AARP doesn't sell or endorse any living trust product. And trusts sold through these schemes often are more costly and don't comply with state law.