What is the difference between a Will and a Trust?
Are you confused about the differences between a will and a trust? If so, you are not alone. Below is some insight to help understand the basics.
Q: What can a revocable living trust do that a will cannot?
There are three major differences. First, you can avoid guardianship. A revocable living trust allows you to name your spouse, partner, child, or other trusted person to manage your money and property, that has been properly transferred to the trust, should you become unable to manage your own affairs. A will only becomes effective when you die, so a will is useless in avoiding guardianship proceedings during your lifetime.
Second, you can bypass probate. Accounts and property in a revocable living trust do not go through probate to be delivered to the intended beneficiary. Accounts and property that pass using a will guarantees going through the probate process to finally reach the intended beneficiary. The probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time-consuming – sometimes taking years to resolve.
Lastly, you are able to maintain privacy after death. A will is a public document; a trust is not. Anyone, including nosey neighbors, predators, and the unscrupulous can discover what you owned and who is receiving the items if you have a will. A trust allows you to maintain your loved ones’ privacy after death.
Q: What can a will do that a revocable living trust cannot?
A will – not a living trust – can be used to name guardians to care for a minor child. Depending on the state law, there may be an additional writing that can be used to name a guardian; however, a revocable trust is not that document.
A will also allows you to name a personal representative – someone who will take responsibility to wrap up your affairs after you die. This typically involves working with the probate court, gathering and protecting your accounts and property not owned by a trust, paying your debts, and giving what remains to your named beneficiaries. But, if there are no accounts or property in your individual name (because you have a fully funded revocable trust), this feature is not necessarily useful.
Q: What can both a will and trust do?
Both a will and revocable living trust can be revised whenever your intentions or circumstances change so long as you have the mental ability to understand the changes you are making. Make sure you to note that there is such as a thing as irrevocable trusts, which cannot be changed without legal action.
Both a will and trust are legal instruments which allow you to name who you want to receive your assets. For example:
- A will simply describes the accounts and property and states who gets what. Only accounts and property in your individual name will be controlled by a will. If an account or piece of property has a beneficiary, pay-on-death, or transfer-on-death designation, this will trump whatever is listed in your will.
- While a trust acts similarly, you must go one step further and “transfer” the property into the trust – commonly referred to as “funding.” This is accomplished by changing the ownership of your accounts and property from your name individually to the name of the trust. Only accounts and property in the name of your trust will be controlled by the trust’s instructions.
A trust, and less commonly, a will, is drafted to include protective sub-trusts which can allow your beneficiaries to receive some enjoyment and benefit from the accounts and property in the trust but also keeps the accounts and property from being seized by your beneficiaries’ creditors such as divorcing spouses, car accident litigants, bankruptcy trustees, and business failures.
While some of the differences between a will and trust are subtle; others are not. Those interested in estate planning assistance may contact me at Anthony.Cetrangelo@henlaw.com or by phone at 239-344-1358.