Last Will and Testament
A Last Will and Testament (“Will”) is an instruction to a probate judge on how to distribute your assets upon your death, if your assets are left in your name alone (no other person or persons are named in the title), and/or if you have not designated a beneficiary to receive the assets.
A personal representative (known as an executor in many states) is appointed within your Will who represents your probate estate in court, should a court proceeding be necessary. Probate is a court proceeding to transfer title of your assets to your heirs, either by the terms of your Last Will and Testament or by Intestate (pursuant to state statutes) if you have no Last Will and Testament.
Revocable Living Trust
A Trust is a written agreement on how assets transferred into the Trust shall be managed, both while you are alive and upon your death. Because you name a “Successor Trustee” to manage the assets in the Trust upon your death (or incapacity), there is no need for a judge to step in to direct how your assets will be managed or distributed (thus avoiding probate and/or guardianship proceedings). While you are alive and capable, you are the Trustee of your Trust. You manage your assets as you always have; assets transferred to your Trust will have a designation next to your name in the title, such as “TTE” or “Trustee”. The designation will be on statements. When you sell, transfer or convey an asset, you will sign your name as “Trustee.”
Key Differences Between a Trust and a Will:
- A Living Trust is activated when you sign it. A Will only takes effect when you die.
- Title to your assets can be transferred while you are alive (and through beneficiary designations on assets, like life insurance, when you die) to the “Trustee of your Trust”. You are the Trustee of your Trust until such time as you resign, become incapacitated or die. Your Trust specifies who will serve as the Successor Trustee – the person who will manage the assets when you cannot. You are still the owner of your assets (because you are the “Grantor” of the trust) and you continue to pay income taxes with your social security number just as you always have. Once assets are in your Trust, you can buy or sell the assets the same way you do now.
- By transferring the title of your assets to your Trust, or by naming your Trust as the primary or secondary beneficiary of your assets, your assets end up, at your death, in a central “pot” (not physically, but legally) which is under the control of one manager (your Successor Trustee) and are distributed only to those beneficiaries named in your Trust. A Last Will and Testament directs only the distribution of assets that must be probated by a court.
- Once your trust is established, you will only have to “amend” one document (your Trust) if, in the future, you have a change of plans for how you want your assets distributed upon your death (versus having to change your Will and possibly all account beneficiaries and titles to property deeds.)
- If you have beneficiaries to whom you don’t want money distributed outright (e.g. grandchildren or heirs with special needs), a Trust is the perfect mechanism to control the distribution of your assets after your death. The terms of a Trust can be tailored to meet your specific instructions for distribution to your beneficiaries (e.g. “may only be used for education”). The terms of a Trust can also be used to protect your assets from in-laws that may or may not share your values, or children who may have problems managing money.