Will or Trust
A Will or a Trust can be used to outline your end-of-life wishes. Both are used in estate planning.
What is a Will?
A Will is a legal document created to provide instructions to an assigned Executor appointed by you on how your property and custody of minor children, if any, should be handled after death.
The authenticity of a Will is determined through a legal process known as probate. Probate is the first step taken in administering the estate of a deceased person (i.e., Decedent) and distributing assets to the beneficiaries. The Probate Court must officially appoint the Executor named in the Will, which, in turn, gives the Executor the legal power to act on behalf of the Decedent to carry out the Decedent's wishes as directed in the Will. In the absence of a Will, the Probate Court must appoint an Executor and the assets are to be distributed pursuant to the State's intestacy laws.
What is a Trust?
A Trust is a fiduciary relationship in which the Trust holds title to your property or assets for the benefit of another and appoints a Trustee to manage and distribute Trust property per the instructions outlined in the Trust document. Your Trustee can be a relative, friend, professional fiduciary, or corporate trustee.
The information below follows further defines a Will and a Trust.
Will
- Ensures that your assets and personal belongings will be distributed as you wish after you die.
- Allows you to have full use of your property/assets while you are alive.
- The Probate Court must determine the authenticity of the Will and officially appoint the Executor named in the will.
- Depending on the state, the assets could be subject to estate taxes.
- Covers all property in your name that do not pass by other means (joint tenancy, beneficiary designation).
- All Assets going through probate become a matter of public record.
- Beneficiaries of your Will are your designated heirs.
- Beneficiaries receive benefits after your death.
Trusts
- Ensures that your assets and personal belongings will be distributed as you wish via transferring your assets to a Trust that holds title to your property or assets for the benefit of another and is managed by a person called your Trustee. Trusts can be funded while you are still living or after you die.
- Some, but not all, allow you to have full use of your property/assets while you are alive.
- A Trust avoids the probate process and most trusts do not have court supervision.
- Certain Trusts can avoid estate taxes.
- Covers only property listed in the Trust.
- Assets named in a Trust remain private.
- Beneficiaries of your Trust fund can be you and/or your designated heirs.
- Beneficiaries can receive benefits while you are alive or after you die.
The best avenue for you to take will depend on your situation and preferences. Meeting with an estate planning professional can help you determine which type of plan is right for you and your family.
Types of Trusts
There are many different types of Trusts, but they all fall into two categories – “Testamentary/After-Death Trust” or “Living Trust”.
Testamentary / After-Death Trust
With a Testamentary/After-Death Trust your Will (or an existing Trust) establishes the Trust to which asset(s) are transferred upon death. Your designated Trustee is responsible for executing your estate as outlined in your Will (or Trust). One example, may be a parent leaving an asset to a Trust for the benefit of a minor child. The parent's Will (or Trust) establishes the Trust to which the asset is transferred upon death, to be administered by a Trustee until the asset is transferred to the child outright at a stated age.
Living Trust
A Living Trust is created and funded during your life. It enables you to maintain control over your assets while you are living and specify exactly how those assets are to be distributed upon your death or incapacity. The Trustee can be a relative, a friend, a professional fiduciary, a Corporate Trustee, or yourself. If you designate yourself, you should also establish a Successor Trustee to handle the Trust upon your death or incapacity.
A Corporate Trustee is a Trust Company or Bank Trust Department that you name to manage your assets and take on the role of Trustee, Co-Trustee, Investment Agent, or Successor Trustee during different phases of the life of your Trust. Learn the benefits of a Trust and the Trust Services provided, as well as here to learn the benefits of choosing a Corporate Trustee.
Living Trusts can be revocable or irrevocable
- Revocable Living Trust – This Trust allows you, the Grantor or Settlor, to make changes to the Trust during your lifetime. You are also the beneficiary of the Trust during your lifetime. Upon your death, the assets are to be distributed pursuant to your wishes as stated in the Trust document.
- Irrevocable Living Trust – This Trust is typically set up to incorporate estate and/or income tax benefits that may be available to you. The Trust becomes a separate entity, and the Trust provisions cannot be amended.
Specific-Use Trust
Trusts can be tailored to fit your goals. Here are a few examples of special uses for Trusts:
- Charitable Trust – realizes tax savings for an estate by donating the asset(s) in the Trust to a tax-exempt charitable organization or nonprofit. The Trust holds the asset(s) until transferred to the charity. Before transferred to the charity, you can continue to receive income or use the property such as art and real estate, while realizing estate tax savings.
- Bypass Trust – Upon death, a spouse can leave assets in a Trust that provides income to the surviving spouse. Upon that spouse’s death, the assets are inherited by the beneficiaries without being taxed.
- Special-Needs Trust – helps provide supplemental financial support for a disabled person without jeopardizing qualification for government assistance. Such Trusts can provide a variety of vocational and recreational services, supporting the individual’s dignity and quality of life.
- Spendthrift Trust – designed to distribute prescribed amounts of money to beneficiaries at specified intervals. Creditors are not able to take a beneficiary’s income from this Trust.
The best avenue for you to take as part of your Estate Plan will depend on your situation and preferences. Meeting with an estate planning professional will help you determine whether any of these Trust options are right for you. Contact us.
This content is intended to be used as a source for general information and is not provided as legal advice.
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