What’s the Difference Between a Will and a Trust?
Wills and Trusts are two of the most common documents used in estate planning. They each have their own benefits and potential limitations. This article will briefly describe some of the main differences between these two estate planning tools. Please contact The Law Offices of Michael Rada to learn more and to discuss how these documents fit into your estate planning needs.
What is a Will?
A will is, in most cases, the cornerstone of your estate plan. This is a document that you prepare during your lifetime that states how you want your affairs handled and assets distributed after your passing. Some will can be very simple, while others quite complex. Wills must be written and executed as per the state’s laws for it to be enforceable so care must always be taken to be sure that the will you are preparing complies with your state’s law. Failure to do so could render the will unenforceable.
When you die with a valid will prepared, you are said to have died “Testate.” When you die with no valid will prepared, you are said to have died “Intestate.”
Your will can give explicit instructions how you want your possessions and assets to be distributed upon your death. You can give these items to family, other individuals or charity. Your will is a legally binding document and the person you chose to be your executor must follow your instructions exactly as they are written, unless you give your executor or someone else decision making powers for how some or all of your assets should be distributed.
If you have minor-aged children, your will can appoint a person or persons to be guardian of your children. If a guardian is not appointed at the time of death, your surviving family will have to seek help in a probate court to have a guardian appointed for your children. The person appointed may not be who you would have chosen to raise your children.
A will can also create a trust upon your death. This is known as a “Testamentary Trust.” In this situation, the will contains all of the language needed for the trustee to manage the testamentary trust upon your death. A primary example of where testamentary trusts are used is in the case of when minor children, or individuals with special needs may inherit all or some of a decedent’s estate. Instead of giving the assets outright to that individual, a trust is formed and funded upon your death such that the trust provides the trustee with direction on how the assets are to be used for that person’s benefit.
With some exceptions, you can also provide in your will explicit instructions that a particular person should not inherit a part of your estate. This is called “Disinheriting” someone.
During your lifetime, your will may be amended or terminated at any time provided you have the legal capacity to do so. If you wish to amend or terminate a will, you should speak to a lawyer as there are specific rules for how this may be done.
A will is not private after your death. It will be filed with the probate court in the county of which you resided upon your death. Further, a assets and property that passes must do so through a probate process. Depending upon the size of your probate estate, this may or may not require involving the probate court. You should seek legal advice on this issue.
What is a trust?
A trust is another fairly common document that is an integral part of many estate plans. This is a document that you prepare during your lifetime that states how you want your affairs handled and assets distributed after your passing. Some trusts can be very simple, while others quite complex. Like wills, Trusts must be written and executed as per the state’s laws for it to be enforceable so care must always be taken to be sure that the trust you are preparing complies with your state’s law. Failure to do so could render the Trust unenforceable.
Oftentimes, trusts are used for asset protection, transfer of real estate, tax avoidance and providing support for Medicaid or special needs individuals. These Trusts can be quite complicated and therefore you should always work with an estate planning attorney in the drafting of these documents.
A trust is a fiduciary relationship in which you give another party known as the “Trustee” authority to handle your assets for the benefit of your beneficiaries.
As mentioned already, a testamentary trust is one that is created in your will. On the other hand, a trust that is created during your lifetime, and one that typically holds some or all of your assets while you are alive is commonly called a “Living Trust” or an “In Vivos Trust.” These trusts can be revocable or irrevocable, meaning you may or may not be able to modify or terminate them once they are created. Most living trusts will be revocable during your lifetime, and then become irrevocable at your death.
Property contained in the trust will pass to the beneficiaries outside of the probate process. This is one of the great advantages of trusts. Trusts are also confidential as they are never filed with the court either during your life or upon your death.
Trusts can be fairly inexpensive to create or quite expensive depending on how complicated they are. In addition, the price asked by an attorney to write your trust may vary widely from one attorney to the next.
Wills and Trusts are extremely important documents and at least one of them will be included in virtually any estate plan. In the case of a trust plan, you will also have a “Pour Over Will” that is drafted to be a sort of catch-all to move, at your death, any assets that were not held in the trust during your lifetime that you wish to distribute through the terms of the trust.
Every estate plan is as individual as the person making it. Trusts are overkill for many estate plans these days due to other estate planning tools that are available such as beneficiary designations on bank and investment accounts. That said, trusts certainly still do have a very valid place in estate planning and are often times the right tool for the job. Once your attorney understands your needs and desires, he or she will carefully craft an estate plan for you using the documents that are best suited for your needs.
To get started on your Estate Plan, please visit www.radalegal.com/estate-planning for more information. You may schedule a 30-minute free no-obligation telephone consultation with Attorney Michael Rada to discuss getting started on YOUR Estate Plan by CLICKING HERE.
You can also call us at (224) 655-5200.
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