Understanding the differences between wills and trusts is critical in estate planning. These legal documents provide clear guidelines about how your health and assets should be managed when you are passing away or have already passed on.
Learning the nuances of wills and trusts can increase your understanding of the estate planning process and better protect your assets for your beneficiaries.
What Is A Will?
In general, a will is a legal document that fulfills multiple purposes. A will coordinates the distribution of your assets after death, sets forth who is to take charge and administer your estate, and appoints guardians for minors.
A will can contain provisions that create trusts, called testamentary trusts, or fund other trusts that already exist.
Types of Wills
Wills come in a few different forms, including:
- Standard Wills – This is what we most commonly think of when it comes to wills. A will outlines how your estate should be distributed after your death.
- Pour-Over Wills – A pour-over will is typically used to fund a revocable trust with assets that have not already been placed in the revocable trust during your lifetime.
- Living Wills/Advanced Medical Directive – A living will, more appropriately known as an advanced medical directive, explains what sort of medical interventions and decisions should be made if you become incapacitated or unable to advocate for yourself. Living wills cover topics such as feeding tubes, pain management, and organ donation.
What Is A Trust?
A trust is an agreement permitting a third party (the trustee) to hold assets on behalf of a beneficiary (the individual or individuals to whom you leave property).
Types of Trusts
In estate planning, you’ll most commonly see three different types of trusts:
- Revocable Trusts/Living Trusts – In a revocable trust, sometimes referred to as a living trust, the title of the assets within the trust are transferred to the trustee while the donor is still alive. Often, the trustee is the person who created the trust, who is also known as the “Settlor” or “Grantor” of the trust. Generally speaking, the initial beneficiary of a revocable trust is the Grantor, and the remainder beneficiaries usually do not receive distributions from the trust until after the Grantor passes away. If the Grantor becomes disabled, there is a successor trustee named in the document to manage the trust on behalf of the Grantor.
- Irrevocable Trusts – Generally speaking, in an irrevocable trust, the Grantor cannot modify the terms of the trust once they’re entered into the document. That said, there are ways to build flexibility into these trusts. Irrevocable trusts are commonly used to divest ownership of an asset for reasons such as Medicaid planning or tax planning purposes.
- Testamentary Trusts – Testamentary trusts are created by language included in your will. The trust is funded by your executor with estate assets, and it can also receive assets from non-probate assets such as life insurance and retirement accounts.
Your estate attorney can help you determine what is best for you, your family, and your estate.
Getting Started With An Estate Planning Attorney
Navigating estate planning should be completed with the assistance of a qualified estate planning attorney. Contact us for assistance!
