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What’s The Difference Between A Will And A Trust?

An estate plan establishes the manner by which your property is held, controlled and transferred. Commonly, it takes the form of a will.

Trusts also have important roles in estate planning, as these documents guide how your property is managed and held during your lifetime and — as with a will — how your property is distributed at your death. Below are some differences between the use of trusts and wills in your estate plan.

Now vs. Later

Unless the trust is created by a will, which a trust attorney calls a “testamentary trust,” a trust takes effect as soon as it is signed and dated. At that point, the trust becomes the legal owner of the trust and the beneficiaries obtain their rights to the income or other benefits provided in it. If the trust includes land or other real property, you will need to deed the property from you to the trust. A will becomes effective to transfer title only upon the death of the will’s maker.

Change of Mind

As a general rule, beneficiaries acquire no rights or vested interests upon the mere execution of a will. An exception arises if the testator entered into a contract to leave the beneficiary something in a will. This feature of a will allows you to change your mind and amend your will, so long as you do so voluntarily and possess the mental and legal capacity to make or amend wills.

The type of trust you choose determines whether you can undo the transfer of property or other legal effects of a will. An irrevocable trust is irreversible. That means, once you create it and transfer property to it, you relinquish all control of the property to the trustee. By contrast, a revocable trust allows the creator to terminate the trust generally at will or upon other conditions and have the property revert to the creator.

You may wish to have an irrevocable trust even if you are the grantor and beneficiary. In an irrevocable trust, you cannot regain control or legal title to the property. Thus, the assets in it are beyond the reach of your creditors. Medicaid generally will treat the assets in an irrevocable trust as not available to you, such that you may qualify should you need assistance paying for a nursing home. Many irrevocable trusts take the form of spendthrift trusts, where the trustee pays the beneficiary (which could be you) a certain amount of income per month.

A revocable trust affords you the power to terminate it at your will. With this power, Medicaid will treat the property in a revocable trust as available to the grantor.

Probate Avoidance

Most of the property that you owned at the time of your death becomes subject to probate. In such a proceeding, the court oversees the collection and distribution of your property, the payment of debts you owed at your death and otherwise the final settlement of your affairs.

As a court proceeding, probate is a public affair. Court filings by your executor or executrix list the property you owned at your death. This includes not only land records, but vehicles, personal and household effects, bank accounts, stocks, bonds and other property that might not otherwise appear in the public records. When you leave property by will, the public can peer into your wealth and those to whom you have left your wealth.

The whole of your assets do not become matters of public inspection with a trust. This is because you do not hold legal title to property in a trust. As such, the property in a trust does not become part of a decedent’s estate and is not subject to probate. The names of those to whom the trust property is distributed at your death do not become public, unlike the beneficiaries in a last will and testament.

The trustee can administer a trust without court supervision, while a major aspect of probate lies in the necessity to account to and get approval from the court for your personal representative’s actions. Probate proceedings also come with filing fees, costs to run legal notices to creditors and attorney fees for assistance in the estate administration.

Alternatives to Trusts for Probate Avoidance

Trusts may allow your loved ones to avoid probate, but they might not solve all problems involved in administration of your assets. Both wills and trusts carry the possibility of disputes over the interpretation of terms, scope of the fiduciaries’ powers and the behavior of the fiduciaries. Personal representatives and trustees could mishandle, either negligently or intentionally, the assets or affairs covered by the will or trust.

Depending on your assets, you might find alternatives to preparing a trust. Life insurance policies, 401(k)s and retirement accounts rank among assets that do not pass to an estate. These products pay your designated beneficiaries according to the terms of the contract, not the operation of estate or probate laws. You can title land and vehicles as joint tenancies with the right of survivorship. Upon the death of a co-owner, the survivor or surviving co-owners assume the interests of the decedent. With a transfer on death deed, you can designate those who will own a particular tract of land upon your death without probate

Ronit Kapoor
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