What is the difference between a will and a trust?
A will is your instruction manual to survivors about how you want your property distributed. It is a revocable, private document that only takes effect after your death. A revocable trust is an entity that holds assets during your lifetime, then transfers ownership of them or benefit from them upon your death. There is no difference between wills and trusts in how they make charitable transfers. In some states the probate and distribution process is simpler with a revocable trust. Your advisors can guide you in choosing which vehicle will work better for you. Planning points • The more narrowly you restrict the use of your bequest, the greater the risk that the program you want to benefit today won’t be as vital or as relevant when we receive your gift in the future. Please talk with us as you are drafting your will if you want to restrict the use of your bequest. • Similarly, please let us know in advance if you intend to bequeath real estate, a business interest, or other specialized
A will is a way for you to express how you want your assets distributed upon death. In your will, you may nominate a person to serve as Personal Representative, nominate a guardian for your minor children to serve if the children’s other parent is deceased. A trust is a contract between you, as the trustor, and a trustee. The trustor is the person that creates the trust; the trustee manages the trust. The beneficiary of a revocable trust is often the trustor during the trustor’s lifetime. A trust can include more detail about your goals in case you become disabled and how you want your beneficiaries to receive your assets upon your death.
A will and a trust are used for different purposes. They are similar in that they both allow you to designate exactly how you want your assets and other personal property to be distributed to your beneficiaries after you die. The major difference between a will and a trust is that a will does not avoid a probate proceeding and a trust does avoid probate. A trust is administered outside of the probate court after you die. Some people prepare a trust to avoid paying estate taxes. Generally, you would not need to prepare a trust to avoid probating your Will if you net assets amount to less than $1,500,000 in year 2004. In this case, a Will would serve the same purpose as a trust because the federal tax laws do not tax a person’s asset for the first $1,500,000 after they die.
Very generally, a will speaks at the date of death and disposes of the decedent’s estate at such time. A trust, on the other hand, speaks at the time of its creation and allows the settlor (creator of the trust) to provide how his or her property is used after the trust is created and even after the death of the settlor. You can read more about estate planning with trusts in the Court Library section of this web site under “Estate Planning with Living Trusts”. Specifically, this information is available at: http://courts.co.calhoun.mi.us/book011.
Both documents transfer property when a person dies. The difference is a will is the traditional document that’s been used for many centuries to do it. In it, you identify your property and name beneficiaries you want to receive it. You can also named a person, called an executor, to round up and manage your property at death and distribute it according to the will terms. A possible drawback: Almost all wills have to go through a court approval process called probate, which adds time and expense to the process. For some, however, especially those with who have feuding survivors, the fact that a court steps in to supervise skirmishes and creditor disputes can be a boon. A living trust is another method of transferring ownership of all — or at least most — of your property to beneficiaries you name. During your lifetime, you are the trustee of your own property in the trust. The person designated as successor trustee is responsible for distributing the trust contents at death.
