Wills and trusts are both useful estate planning tools that serve different purposes, and they can work together to create a comprehensive estate plan. The main differences between a trust and a will relate to these issues: (1) whether probate is involved, (2) what assets and legal affairs are affected, and (3) when does the instrument take effect?
A will is a legal document that directs who will receive your property upon your death, and it appoints a legal representative (“executor”) to carry out your wishes. A will covers any property that’s in your name at the time you die that’s not held in a trust or is an asset that passes automatically to designated beneficiaries (e.g., inheriting under insurance, joint tenancy, or retirement plans), and it only takes effect after you die.
A trust is a legal arrangement through which one person (or an institution like a bank or law firm) called a “trustee,” holds legal title to property for the benefit of another person, called a “beneficiary.” A trust can be used to distribute property before death, at death, or afterwards. In order for property to be included in a trust, it must be put in the name of the trust.
Trusts can be revocable (meaning you can change or end it at any time) or irrevocable, depending on your needs and goals. A trust often has two types of beneficiaries — one set that receives income and/or assets from the trust during their lives, and another set that receives whatever is left over after the first set of beneficiaries dies. Often the person setting up the trust (called the “grantor”) will retain the right to income from the trust for the rest of their lives, while saving the trust principal for their family or other beneficiaries.
Setting up a trust for your beneficiaries can be especially helpful if a beneficiary is a minor, has special needs or receives public assistance, can be easily influenced by others, or is incapable of managing money. In these cases, their inheritance could be held in trust for their lifetime and managed by a trustee of your choosing to meet the beneficiary’s needs and circumstances.
Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid and the property gets distributed the way the creator wanted. Probate usually take many months and costs the estate money. A trust passes outside of probate, so a court doesn’t need to oversee the process, which can save time and money. Also, unlike a will, which becomes part of the public record, a trust can remain private.
Wills and trusts each have their advantages and can help you achieve different estate planning goals. For example, a will allows you to name a guardian for children and to specify funeral arrangements, while a trust can be used to plan for disability or to provide savings on taxes. Trusts can be especially helpful in planning for MassHealth (Medicaid) eligibility.
The Heritage Law Center can help you decide how to use a will and a trust in your estate plan. Call us today at (619) 765-9307 or send an email to mkarr@maheritagelawcenter.com to schedule a free consultation today.
