Perhaps the best way to begin to explain the difference between a will and a trust is to explain what they have in common. Both wills and trusts are vehicles by which an individual hands over their property to their heirs. The differences are in when they go into effect and how they are administered.
First, though, let’s define a will and a trust. A will is a legal document that you create to indicate where and to whom you want your estate (i.e. your possessions, money, land, home, etc.) to be distributed when you die. If there is a will in place and it is determined to be valid, the court will then execute your wishes as you set forth in the will and your property will be divided up as you indicated. It is possible to die without a will (a.k.a. dying “intestate” ), meaning you do not give specific instructions of how your estate is to be divided and the law instead will divide it up amongst living family members based on their criteria.
A trust is also a legal document; however, it creates a separate legal entity through which the property of the estate is administered—even before the person who owns the property dies. Trusts are designed to be used by the living to safeguard and manage property on behalf of the owner. Trusts can be set up for children by their parents to ensure that if the parents die before the children reach the age of 18, they have a set fund that is established for their care and education. NOTE: There are trusts that are set up in wills to only take effect upon the death of the maker. These are known as “testamentary trusts.”
In estate planning, trusts usually come in the form of revocable or irrevocable living trusts. Irrevocable living trusts are designed to help move along the estate administration before the owner has died. It is often used to avoid gift and estate taxes for the maker of the trust. The downside of an irrevocable trust is that the maker cannot be the trustee of the trust, meaning they can have no part in the management of the trust or the assets. Also, once property is placed in an irrevocable trust, it usually cannot be removed by the maker of the trust.
A revocable living trust, on the other hand, is designed to benefit the maker of the trust as well as the beneficiaries. The maker is allowed to be the trustee, meaning they can participate in the management of the trust. The main purpose of a revocable living trust is to fast-track the assets in the trust to the beneficiaries when the maker dies as these assets do not need to go through the usual probate process with the court. Even if the maker becomes incapacitated, if they have designated a successor trustee, it is not necessary for the court to appoint a conservator or guardian.
In terms of administration of the two, trusts require a great deal of administration at the beginning when they are being established and managed while wills require a great deal of administration when the maker dies. With a will, the court will almost certainly be involved in probating (i.e. executing the wishes of the deceased). This is not necessarily the case with a trust.
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If you are interested in establishing a trust or drafting a will, the attorneys at Carolyn Moller Duncan, PC can answer your questions, advise you of your options, and draft the necessary documents. Contact us today atto get started.