Learn the Difference Between a Will and a Trust
Although the two terms are often confused, wills and trusts are really very different in a few important ways. Which suits you better might come down to your personal situation and concerns.
When Each Takes Effect
A last will and testament only goes into effect after the death of the testator -- the individual who wrote it. A living trust goes into effect as soon as it's signed. You can change both up until the time of your death as long as you remain mentally competent unless you create an irrevocable living trust.
These trusts are pretty much forever.
The Property Each Covers
A will can only govern the disposition of property owned in the testator's sole name, including interests in property such as a tenancy in common. It cannot address assets that pass directly to a beneficiary by contract or by operation of law, such as life insurance policies or joint tenancies with rights of survivorship,
A living trust can govern and distribute any property it's been funded with. The grantor -- the person who created the trust -- transfers his assets into it after it is formed. These can include life insurance policies provided that the trust, not the grantor, owns the policy, and tenancy-in-common interests.
Wills Require Probate
Property passing under the terms of a last will and testament requires probate to transfer to a living beneficiary. Property passing under the terms of a living trust avoids probate.
The trust's terms are the mechanism by which the assets it holds can move to a new individual's ownership.
A trust can even continue to hold a property for the benefit of certain beneficiaries, such as minor children who cannot legally take ownership of their own property or spendthrifts who might otherwise whip through their inheritances.
Wills become a matter of public record when they're submitted to the court for probate. The terms of living trusts remain private.
Trusts Provide for Life and Death
A will does nothing to plan for mental disability because it does not go into effect until the testator dies. If he becomes mentally incapacitated before that time, his loved ones would have to approach the court to ask that a conservator or guardian be appointed to handle his affairs. This can be costly and stressful.
Provisions for disability can be written into a revocable living trust. The grantor of this common type of trust typically acts as its trustee during his lifetime, managing the property and assets he has funded into it. He names a successor trustee -- someone of his choosing, not the court's -- to take over when he dies. The successor trustee can either settle the trust or continue to manage it, depending on the terms contained in the grantor's trust formation documents.
The successor trustee can also step in if the grantor becomes mentally incapacitated, avoiding the need for a court-appointed conservator or guardian.
NOTE: Laws can change frequently and the above information may not reflect the most recent changes. Please consult with an attorney for the most up-to-date advice. The information contained in this article is not legal advice and it is not a substitute for legal advice.