Most of us have heard the legal terms "will" and "trust", but not everyone knows the differences between the two. Both are useful estate planning devices that serve different purposes. Both can also work together to create a complete estate plan.
One main difference between a will and trust is that a will only goes into effect after you die, while a trust takes effect as soon as you create it. A will is a document that directs who will receive your property at your death and it appoints a legal representative to carry out your wishes. You may amend your will at any time. In fact, it's a good idea to review it periodically and especially when your marital status changes. You should also review your beneficiary designations which determines who or where your assets will be transferred to when you pass.
A living will (also known as an advance medical directive) is a statement of your wishes for the kind of life-sustaining medical intervention you want, or don't want, in the event that you become terminally ill and unable to communicate.
A trust can be used to begin distributing property before death, at death or afterward. 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 the property for another person, called a "beneficiary." A trust usually 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.
A will covers any property that is only in your name when you die. It does not cover property 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 the property to be included in a trust, it must be put in the name of the trust.
Another difference between a will and 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. A trust passes outside of probate, so a court does not need to oversee the process, which can save time and money. Unlike a will, which becomes part of the public record, a trust can remain private.
Wills and trusts each have their advantages and disadvantages. 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. Your elder law attorney can tell you how best to use a will and trust in your estate plan.
At Woods Elder Law, we counsel clients on planning for the elder years, which is known as life planning. You can contact us at 586-532-8970 to schedule a consultation to see what’s best for you. You can also reach out to us on the contact form on our website. From now until December 31, 2020, we are offering $75 off of your consultation fee for Elder Law Issues, Estate Planning, Wills, Trusts, Power of Attorney, Patient Health Advocates, VA Benefits, Medicaid and Nursing Home Assistance, Probate Matters and more.