A testamentary instrument is the cornerstone of an estate plan. In many cases, testators draft wills. Wills can designate beneficiaries and personal representatives. However, some people have more complex estate planning needs than others. They may want to establish a more thorough estate plan. Sometimes, people establish their legacies by funding a revocable living trust instead of simply drafting a will.
What are some of the differences between a trust and a will that can help people choose which option is best for them?
The function of the document
A will is a testamentary instrument that takes effect when a person dies. The testator has to draft documents in advance while they are still relatively healthy and aware of their circumstances. Creating a trust typically also needs to occur while someone has testamentary capacity. A trust is a separate legal entity that exists to manage and distribute resources. A trust can outline who inherits property from the trust when the trust creator eventually passes. Both wills and living revocable trusts are modifiable, which means that people can adjust them as their needs shift.
Who controls resources
When an individual uses a simple will as their testamentary instrument, their beneficiaries typically take direct control of inherited property. Once they receive the resources from the personal representative administering the estate, they can choose to do what they want with those assets.
A trust, on the other hand, can impose certain restrictions or requirements on asset distribution. For example, the testator can instruct the trustee to only allow distributions for certain types of expenses. They can require that the trustee make payments to third parties instead of distributing assets directly to beneficiaries. These arrangements can be particularly useful when beneficiaries might misuse their inheritance or are vulnerable to the influence of outside parties.
Probate matters
Assets addressed in a will become part of an estate. They are subject to creditor claims and probate court oversight. While the probate courts can also play a role in trust administration, assets used to fund a trust may have some protection from creditor claims.
Trusts can also separate the trust creator from their resources, which may help them qualify for Medicaid benefits later in life or protect their resources from litigation. Trust can be particularly beneficial for those worried about collection activities or Medicaid coverage. They can also be helpful for those concerned about estate taxes. Wills and revocable living trusts often work well in conjunction with one another.
Factors including the value of an individual’s assets, the degree of conflict within their families and their personal preferences regarding their lasting legacy may influence whether a trust, a will or both might be the best option. Reviewing estate planning needs at length with a skilled legal team can help people make reasonable decisions regarding the creation of wills and trusts.