Trusts and Wills – the differences

Trusts and Wills Are Different

When you set up a living trust, it is something that “comes alive,” or is legally effective the moment you sign the trust document. Trusts are “right now” documents, which means they are immediately effective.  A will is different in that while your will is legal, it really does not take effect in legal terms until your death. Prior to your death, it is not a document that is, in the strict sense of the word, “enforceable.” For example, if you leave Susan $100,000.00 in your will, she cannot sue to get that will enforced, prior to your death, since the will is not going to be effective until it is probated (which is where the will is submitted to the Court and administered via the statutory processes mandated). Trusts and wills are two very different documents and both are necessary.

Trusts and Wills: How a Trust Operates

A trust works something like this:

Let’s say you own a valuable painting. It’s worth $100,000.00. You have your attorney prepare a trust, naming yourself as the Trustee, and naming yourself as the primary beneficiary. You also name a successor Trustee. Let’s say you name your daughter (could be a son, or spouse) as successor Trustee. This is the person who will be the Trustee once you pass on, or if you’re incapacitated. You also named your daughter (or son, or spouse, or children) as secondary beneficiaries. In other words, she (or they) will take the property after you pass on.

You also have language in the trust that says, in essence, that you get to use that painting all your life, and in fact, if you ever want to sell it, you can. Now, sometimes it isn’t wise to have language like this in your trust as it can have some tax implications, but for this example, it works.

When you dieliving trust wills estates probate 219-736-1420, the successor Trustee comes in, values the painting, files any tax returns necessary, and distributes the cash remaining to the beneficiaries as spelled out in the trust.

The reason this can be done is because you gave up legal ownership of the painting during your lifetime. You gave away ownership to the trust, retaining a beneficial ownership. In other words, you split the ordinary elements of ownership: legal and beneficial. Trusts and wills are great vehicles to achieving those goals.

Trusts and Wills: How a Will Operates

A will works like this:

You have your lawyer draw up a will. It must be executed (signed) under very strict circumstances. The law is very precise here. For example, in most states, there is a requirement for two witnesses. If one of those witnesses does not actually WITNESS the signing of the will, your will can be contested, perhaps even thrown out. There was a rather famous case in the state of Indiana where one of the witnesses was staring out the hospital window in the room where the testator was signing his will. He didn’t see the will signed. The Court refused to probate the will.

A will conveys your property to your heirs.This does not mean your property is given immediately to them. An estate has to be opened and the probate process then begins. However, if all the property (assets) owned by the decedent was given to the trust prior to death, then there is nothing to probate. While there is wisdom in opening an estate for several reasons, there is no reason to have to probate that estate.

Trusts and Wills: Pour Over Provisions in a Will should be made

It is not uncommon for a lawyer who has prepared a living trust for a client, to prepare a “pour over” provision in the will, allowing that any property owned by the decedent, be put into the trust. This allows property that may not have been put into trust, to ultimately find its way into trust where it will be distributed pursuant to the terms of the trust.

Trusts and Wills: Competency can be an issue

Sometimes, competency can be an issue in deciding on the validity of trusts and wills. When trusts and wills are executed, one of the requirements are that the testator or testatrix (man or woman) be mentally competent. Here is some information on competency in trusts and wills  in a podcast.

Trusts and Wills – the Differences – copyright 2009 Voyle A. Glover

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5 Responses to “Trusts and Wills – the differences”

  1. Exactly what I was thinking. Your post was 100% correct. To get back up with your ex is not the hardest of the tasks But it for sure may cost some effort

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  5. Daniel James Devine says:

    Mr G,

    This is fascinating; I knew you set up my grandma with a trust but really didn’t know what it was.

    I wasn’t aware you had started this blog; I’ve sent my dad the link to the “legal value of housewives” post down the page. He does a lot of family teaching and counseling and will be interested in what you say there.