Wills and Trusts: A Quick & Simple Reference
Are you confused about the difference between a will and a trust? If so, you are not alone. Understanding the basics can provide you with general information, before you contact an expert like me. Here is a quick reference guide:
What a Revocable Living Trust Can Do – That a Will Cannot
- Avoid conservatorship and guardianship. Revocable living trusts allow you to name a person of your choice to manage your affairs after you die. That person will also step into your shoes if you become incapacitated and unable to manage your affairs. Wills become effective when you die, therefore, it’s useless in avoiding conservatorship proceedings.
- Bypass probate. Trusts can avoid probate if they are drafted and funded properly. However, assets that pass through a will must go through probate. The probate process is often lengthy and can be complicated. Avoiding probate is one reason to ensure that you have properly drafted estate documents.
- Maintain privacy after death. A will is a public document. Nosey neighbors, creditors, and unintended beneficiaries can access your will. A trust is a private document, which allows only those with a need to know to access the trust.
- Protect you from court challenges. A will and a trust can be contested in court. That said, challenges to a trust have a lower success rate, because the trust is private.
What a Will Can Do – That a Revocable Living Trust Cannot
- Name guardians for minor child. A will, unlike a 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.
- Specify an executor or personal representative. A will allows you to name an executor or personal representative. That is the person who wraps up your affairs after you die. They will work with the probate court, pay any outstanding debts, manage assets not properly titled in the name of the trust (if there is one), and distribute assets not in the trust.
What Both a Will & Trust Can Do:
- Allow amendments. Both wills and trusts can be amended, if the document permits and if the creator is alive and competent.
- Name beneficiaries. Both a will and trust are vehicles which allow you to name whomever you want to receive your assets. Both a will and a trust designates who is to receive what property. Assets in your individual name will be controlled by a will. Assets in the name of the trust will be controlled by the trust. Assets with beneficiary designations will be paid to the person or entity so named. Examples of these assets are real estate held in joint tenancy, life insurance, pay-on-death, or transfer-on-death products. These designations supersede whatever is listed in your will.
- Trusts also designate who will receive what property. The difference is trust assets must be properly titled in the name of the trust. We call this “funding” the trust. If assets are not properly titled, the trust does not have control over them. If there is proof that the settlor (creator of the trust) intended to transfer an asset into the trust but did not a court proceeding will be required. That can be costly and time consuming. Doing it right in the beginning saves time and money.
- Provide asset protection. A trust can provide asset protection. To a lessor extent so does a will. Properly drafted documents ensure that your beneficiaries receive their intended benefit and possibly protection from their mistakes.
While some of the differences between a will and trust are subtle; others are not. One thing that is important for all estate documents, they should be updated on a regular basis. Especially with things changing as quickly as they are, the last thing you want are stale estate documents. I am Francine Ward, Your Trusted Counsellor.