Understanding the Differences Between a Will and a Trust

The words “will” and “trust,” are familiar terms that most everyone has heard; however, many people do not understand the differences between the two. Both are documents that individuals use to transfer assets, the main difference between the two is when they take effect.

A will takes effect when you die.  A will is basically a letter to the probate Judge that directs who will receive your assets at your death and who is in charge of distributing the assets (the “executor”).  Probate is the name of the legal process that transfers assets to your beneficiaries.  It controls all assets owned solely in your name at the time of your death, that do not name a beneficiary.

There is a common misconception that if you execute a will, you can avoid probate.  Even with a will, if you own real estate of any value or other assets titled in your own name (with no joint owner or beneficiary designation) totaling over $100,000 in value, then a probate proceeding will likely be necessary to transfer such assets to the beneficiaries named in your will.

A living trust is a written agreement which an attorney prepares for you that takes effect immediately (unlike a will, which does not become effective until after death). This agreement is established by you (the “Grantor” or “Settlor”) and the assets in the trust are managed and distributed by you as the “Trustee.” During your lifetime, unless you become disabled, you will be the Trustee.  You retain full control over the assets in your trust during your life.  The living trust also provides you with the ability to manage your financial affairs without a court controlled guardianship, if you become disabled. Your living trust is like an instruction manual that gives directions as to how anything owned by the trust must be used or distributed, both during your life and after your death.

For a living trust to work properly, your trust must be fully funded.  Funding your trust means transferring your assets to your trust.  This will require a name change on your real estate and various accounts (excluding IRA’s, retirement plans, and insurance policies). Our firm assists you with transferring your assets into your living trust. Your real estate, bank accounts, stocks, brokerage accounts, bonds, and mutual funds will be owned by your living trust.  With careful consideration, you can also name your trust as the beneficiary (not the owner) of your insurance policies, retirement plans, IRA’s, and annuities. You can always add additional assets to your trust or remove assets from your trust.

A fully funded living trust avoids probate at your death.   Remember, probate is required to transfer assets that you own in your individual name at the time of your death.  Probate is avoided because your assets have been transferred to your trust during your lifetime.  Your trust is a legal entity that continues to live, even after you are gone, that contains instructions as to whom is appointed as successor trustee and how the assets must be transferred, so your family does not need the probate court to distribute the assets to your beneficiaries. The trust document gives the successor trustee complete authority to transfer any assets titled in the name of the trust, without any court involvement.

Unlike a will, your trust has the ability to keep on working after your death, if you want it to. It can provide for a distribution of funds over a period of time (as long or short of a duration as you want) for those who might need it. For example, you probably want to control the distribution of funds to a person who is a minor child, who has a disability, who is in an unstable marriage, who has poor money management skills, or who has a drug or alcohol addiction.  You can even set up your trust so that it “bulletproofs” your children’s inheritance from lawsuits, creditor’s claims, and divorces. The trust allows you to leave instructions for those who need continuing protection and financial guidance. For those who don’t require that type of control, the trust can provide for a distribution immediately following your demise. A trust is not just a way to avoid Probate. It gives you PEACE OF MIND, knowing your estate will be distributed to the persons you want, in the amount you want, when you want, and how you want.

It is such a pleasure to work with you — you are making our lives very easy in the process!

sue