Confused about the differences between wills and trusts? If so, you’re not alone. Here’s a quick and simple reference guide:
What Revocable Living Trusts Can Do – That Wills Can’t
- Avoid a conservatorship and guardianship. A revocable living trust allows you to authorize your spouse, child or other trusted person to manage your assets should you become incapacitated and unable to manage your own affairs. Wills only become effective when you die, so they are useless in avoiding conservatorship and guardianship proceedings during your life.
- Avoid reliance on a power of attorney. Powers of attorney are great tools to allow other to assist with managing a person’s affairs or completely taking over in the event of incapacity. Often, a well-drafted power of attorney can eliminate the need to obtain a court controlled conservatorship or guardianship for a loved one that cannot care for themselves. However, reliance on a power of attorney has its risks. Banks and other financial institutions are notorious for not accepting powers of attorney (and they are not required to do so), requiring that changes be made to a power or attorney or even requiring that the power of attorney be no older than a certain date. All of these are significant problems if the person no longer has the capacity to execute a new power of attorney. Trusts get around the uncertainty of a power of attorney by operating in accordance with a set of laws that direct how one interacts with a trust and how the trust manages assets. Because of the extensive treatment in Mississippi law, trusts generally interact with banks and other financial institutions without any problem, assuming that the trust was drafted properly (and not some random form downloaded from the Internet).
- Bypass probate. Property in a revocable living trust does not pass through probate. Property that passes using a will guarantees The probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time consuming.
- Maintain privacy after death. Wills are public documents once you pass away and the will is probated; trusts are not. Anyone can discover the details of your estate once the probate process officially begins. Trusts allow you to maintain your family’s privacy after death.
- Protect you from court challenges. Although court challenges to wills and trusts occur, attacking a trust is generally more difficult than a challenge to a will, in large part because the probate process is a court proceeding that requires participation by beneficiaries, thereby giving them a more easily accessible forum to make a challenge.
What Wills Can Do – That Revocable Living Trusts Can’t
- Name guardians for children. Only a will – not a living trust or any other type of document – can be used to name guardians to care for minor children.
- Specify an executor or personal representative. Wills allow you to name an executor or personal representative – someone who will take responsibility to wrap up your estate after you die. This typically involves working with the probate court, protecting assets, paying your debts, and distributing what remains to beneficiaries. But, if there are no assets in your probate estate (because you have a fully funded revocable trust), this feature is not necessarily useful.
What Both Wills & Trusts Can Do:
- Allow revisions to your document. Both wills and trusts can be revised whenever your intentions or circumstances change so long as you have the legal capacity to execute them.
However, if a trust is irrevocable, then it generally cannot be changed, although there are exceptions.
- Name beneficiaries. Both wills and trusts are vehicles which allow you to name beneficiaries for your assets.
- Wills simply describe assets and proclaim who gets what. Only assets in your individual name will be controlled by a will.
- While trusts act similarly, you must go one step further and “transfer” the property into the trust – commonly referred to as “funding.” Only assets in the name of your trust will be controlled by your trust. At death, the trustee already has possession and title to the assets and distributes or manages the assets as set forth in the trust agreement.
- Provide asset protection. Trusts, and less commonly, wills, are crafted to include protective sub-trusts which allow your beneficiaries access but keep the assets from being seized by their creditors such as divorcing spouses, car accident litigants, bankruptcy trustee, and business failure.
While some of the differences between wills and trusts are subtle; others are not. We can take a look at your goals as well as your financial and family situation and design an estate plan tailored to your needs. Call us today and let’s get started.