Most people do not know what a trust is and therefore do not contemplate ever needing one, but if you have specific wishes as to how you want your property disposed or you want to name any beneficiary in the entire world, then a trust may be right for you. Let’s start with basic definitions. A will is a legally binding document (if executed properly) that lays out the testator’s wishes (how s/he wants to be buried, disposition of property, etc.) after he or she has passed away. A trust is a legal relationship in which one person or entity (trustee) holds property for the benefit of himself or someone else. The major difference between a will and a trust is that the will benefits the beneficiaries when the testator has passed but the trust can benefit the beneficiaries before and after the grantor’s death. Here is an over-simplified run down (not exhaustive) of the distinct characteristics of wills versus trusts.
(1) Testator (the one for whom the will is written) has less flexibility in selecting his beneficiaries. Some states do not permit you to disinherit children or spouses.
(2) Wills are not private documents. Once they are filed with the register of wills they are public record and subject to probate.
(3) Wills are practical for those with personal property that they want to pass down (e.g. paintings, jewelry, treasured DVD collections like “Bonanza- The Lost Episodes”). If you put real property in your will, the property will be subject to probate, which can be a long and drawn out process and can create a delay in disposing of the property according to your wishes (although most states have drastically streamlined their probate process).
(4) Property that is disposed of through a will may be subject to creditor’s claims.
(1) Grantor (the one who is setting up the trust) has complete free will in naming beneficiaries of his or her trust.
(2) Trusts are private documents and do not have to be filed with any state registry.
(3) Trusts are perfect for passing property that has a title. For example, homes, boats, etc. Cars are the exception. Once the trust is established, the title of the property that the grantor wants to fund the trust would be transferred to the name of the trustee (which can also be the grantor or someone of the grantor’s choosing). The trust allows the grantor to pass the title without a break in continuity of ownership and, in most cases, allows beneficiaries to avoid dealing with the bureaucracy of probate court.
(4) Trusts can provide asset protection from your (and your beneficiaries’ creditors) if they are set up properly.
There are all kinds of trusts. Charitable trusts, life insurance trusts, dynasty trusts, special needs trusts, revocable and irrevocable trusts and they all serve different purposes. What is more, a trust can be drafted into your will to create a “testamentary trust.” If you have substantial real property and other assets and want to reduce the amount of taxes your estate will have to pay, a trust may be right for you. If you want to fund your children’s or grand-children’s education with your assets while you live or after you pass, then a trust may be right for you.
There is a whole world out there on this topic. For advice on the estate planning tools that are right for you, drop me a line at firstname.lastname@example.org or by phone at (202) 507-6313.