Looking at how often the terms wills and trusts are used for one another, you might begin to think that they are interchangeable. But the truth of the situation is that these two terms mean very different things.
Let’s take a look at what those differences are.
When Wills and Trusts Take Effect
The first difference between wills and trust is the moment that each goes into effect. A last will and testament only begins working after the death of the testator, the person who created the will. There are situations where you only need a will to take care of your affairs, but that largely depends on the situation, concerns, and last wishes of the testator.
A living trust, on the other hand, takes effect the moment you sign the documents. Unless you create an irrevocable living trust, you can change both wills and trusts until you pass away or are mentally incapacitated.
What Does Each Cover?
There are certain limitations on what types of property wills can disperse. For starters, a will can only disperse property that is in the testator’s sole name. A will cannot override any laws or contracts that govern certain properties, such as joint tenancies with rights of survivorship or insurance policies.
A living trust must be funded before it can distribute any property. Whatever property that you, the grantor, fund your trust with is the property that will be dispersed. Unlike a will, a trust can hold an insurance policy, so long as the trust owns it, not the grantor.
Wills and Probate
This is perhaps the largest and most consequential difference between wills and trusts—wills that transfer property to a living beneficiary require probate, trusts do not. Because the trust’s terms are what control how property will be distributed, the courts do not get involved.
Another added advantage that trusts offer is the ability to hold and place conditions on certain properties. For instance, you can stipulate that your minor children will not receive their inheritance until they come of age. You can also determine what the money can be spent on, like education and housing.
Trusts and Mental Disability
When it comes to mental disability, wills and trusts are not created equal. A last will and testament does nothing for mental disability or incapacitation. Because a will does not go into effect until death, the family of the testator would need to approach the court and have a guardian or conservator appointed, which costs time and money, not to mention the emotional toll.
With a revocable living trust, mental disability is taken into account. The grantor of the trust, who acts as trustee while alive and mentally fit, has the ability to name—his choice, not the court’s—a successor trustee who will oversee the trust in the event of death or incapacitation. Depending on the terms of the trust, this successor will either settle the trust or continue running it.
Whether you choose to leave your heirs their inheritance in your will or through a trust, you need expert help to do it right. Call Casal & Moreno today.