The Role of Trusts in Estate Planning
September 11, 2019, By Shelley Thompson and Laura Fodor, Burns Figa & Will, P.C.
When you create an estate plan, there are many considerations to take into account. Among the
considerations you will take into account when creating an estate plan is whether you need a
will or a trust. A simple will is a short document that states to whom your assets will be
distributed when you pass. Trusts also state to whom your assets will be distributed, but include
additional features that allow you to further control the manner in which your assets are distributed.
This article explores the differences of a will and a trust as they may apply to you, and also
discusses two different types of trusts you may need to choose between.
A simple will is a short and simple estate-planning document that states to whom your assets will
be distributed upon your passing. Your will names the person you wish to administer your estate,
known as a personal representative or executor. For example, you may provide in your will that all
of your assets will go to your spouse, and if he or she is not living, then equally to your children.
You may also state that your spouse will be your personal representative, and if he or she is not
living, then your brother.
While a will has the benefit or being short, simple, and effective in distributing your assets,
it also has some limitations. Once you pass, your assets are distributed to your beneficiaries
all at once. This means that you cannot substantially control when your beneficiaries will receive
their distributions. Typically, a will is also subject to probate. Probate is the legal process for
administering an estate. It requires that your personal representative file papers with the court
to obtain permission to administer your estate and make distributions to your beneficiaries.
Keep in mind, however, if your assets are jointly owned for example with your spouse, probate
will not be necessary until both of you are deceased.
A trust is more complex and gives you additional control over the distribution of your assets.
A trust states to whom your assets will be distributed and names the person you wish to manage your
trust. In a trust, this person is known as a trustee. Additionally, trusts may include “strings
attached,” allowing you to control when your beneficiaries will receive your trust assets. For
example, if you have a large estate, you may wish for the assets to be held for your child for his
or her lifetime, giving your trustee the discretion to determine when and for what purposes to
distribute the trust assets to children. Trusts like that also provide the benefit of creditor
protection for those children, after you are deceased, for the lifetime of the trust. This means
that if your assets are held in trust by an independent trustee, your beneficiaries’ creditors
cannot go after the trust’s assets. For this reason, the event of your child’s divorce, the trust
appreciation is more likely to be considered a separate asset rather than a marital asset.
While a trust has the benefit of giving you more control over distributions, this benefit also
creates some disadvantages. Trusts are longer and more complex documents and require additional
costs and administration after you pass.
Living Trust vs. Will with a Testamentary Trust
If you think you need a trust, then you may be asked to consider whether you want a living trust or
a will with a testamentary trust. A living trust is a trust you create now and transfer all of
your assets into during your lifetime. A living trust has all of the benefits and disadvantages
discussed above and also allows your estate to avoid probate. However, in order to avoid probate,
your trust must be fully funded before you pass. This requires that you re-title certain assets
into the name of your living trust during your lifetime. For example, you may have to change the
name of on your savings account to the name of your living trust.
A will with a testamentary trust, on the other hand, is a will that contains a trust that becomes
effective only upon your passing. A testamentary trust carries same benefits described above,
like allowing “strings attached” and creditor protection for your beneficiaries, but it does
not allow your estate to avoid probate.
States Who Will Receive Your Assets on Death
Can include “Strings Attached”
Creditor Protection for Beneficiaries
Can Avoid Probate
|Will with a Testamentary Trust
The above chart summarizes the features we have discussed with respect to each instrument. Visiting
an attorney in person, or utilizing an attorney site like iWillandTrust.com, are the best ways to
further decide which one is right for you and to create your estate plan (do not use non-attorney
sites, like LegalZoom, RocketLawyer, Willing, Fabric, etc., as they merely populate forms without an
attorney customizing them for you and as a result the forms often do not meet your specific needs).
We hope this information helps you decide whether you need a will or a trust, and ultimately helps you
take steps to completing your estate plan!