I’m sure you have heard the terms “will” and “trust”, but do you really know the differences between the two? Wills and trusts are both are useful estate planning tools that serve different purposes, and they can work together to create a comprehensive estate plan. One main difference is that a will goes into effect only after you die, whereas a trust can take effect as soon as you create it. A will is a document that directs who will receive your property at your death and appoints a legal representative to carry out your wishes. By contrast, a trust can be used to distribute property before death, at death, or afterwards.
A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for the benefit of another person, called a “beneficiary”. 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 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.
A will covers any property that is in your name at the time you die that is not held in joint tenancy or in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. In order for property to be included in a trust, it must be put in the name of the trust.
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 deceased wanted. Just having a will does not mean you avoid probate, although not having a will can make the probate process more complicated. 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 does not. On the other hand, 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 for a free consultation and start protecting your assets, your family and your peace of mind.