Wills Vs. Trusts 101
What is the difference between a will and a trust? Do I need one, either, both or neither?
First of all, there is a wide range of differences among types of trusts, but here we will focus on revocable living trusts. A revocable living trust is basically a separate entity in which assets are deposited and withdrawn during one's lifetime. The person who contributes assets to the trust is called the “settlor.” The person who receives the benefits of the trust is called the “beneficiary.” The person who maintains the trust is known as the “trustee.” When the assets are in the trust, they are titled in the name of the trustee. A key benefit to any type of trust is that the assets bypass the probate process upon the death of the settlor.
One of the most obvious benefits to a trust is that the “settlor” can keep his or her estate plan private. A will is filed in court upon the death of the testator, and thus becomes a public record. A trust, however, is a private document. Therefore, if privacy is necessary, a trust may be the way to go.
Another less obvious benefit to having a trust is that it makes handling an estate with real property in multiple states much easier. Without a trust, if the decedent owns real property in more than one state, a probate proceeding must be opened in both states to handle the disposition of that property upon the decedent’s death. If a trust is the owner of the property, however, it can pass to the beneficiary without the unnecessary expense of duplicative probate proceedings.
If you are married, and have substantial assets, a trust can lower your estate’s tax bill. Also, if you are in a second or subsequent marriage, and you and your spouse have separate beneficiaries, you will find that avoiding the probate process altogether can be significantly easier. For those who are single, trusts can, among other benefits, help avoid a court-supervised guardianship. If you have minor beneficiaries, trusts can help your children avoid the pitfalls of inheriting wealth at a young age.