Trusts and Last Will and Testaments (commonly referred to as wills) are common terms used in the estate planning landscape. Although both are valuable estate planning documents that help ensure your property is transferred to your heirs, they serve different purposes. The primary difference between a trust and a will is that trusts can take effect right after creation, while a will is effective upon death.
Creating A Trust
A trust is a legal document that allows you to start distributing wealth during life and after death. It gives another party, a Trustee, the authority to manage the trust which holds legal title to the property for the benefit of another party known as a beneficiary. The Trustee can be an individual, a professional fiduciary, or an institution, such as a bank. A trust is created when a person signs the trust document identifying the creator of the trust (the grantor), who will be managing the trust (the trustee), and who will be benefiting from the trust (the beneficiaries). It is also the Grantor’s responsibility to make sure that their assets are retitled into the name of their trust.
There are different kinds of trusts that a grantor can establish based on what the grantor is trying to accomplish in their estate plan. Trusts can assist with asset protection, tax planning, special needs planning, and more. There are many different types of trusts, but the two most commonly known trusts are revocable and irrevocable trusts.
Benefits of a Trust
There are many benefits to creating a trust, such as the following.
- Avoids probate – a trust avoids probate, the court-supervised process of administering a deceased person’s estate and proving the authenticity of a will, saving time and money.
- Protects your privacy – a trust is a private arrangement between the grantor and trustee and does not enter the public domain.
- Asset Protection – depending how the trust is drafted, the trust can protect your assets from certain creditors and predators, such as ex-spouses.
- It provides peace of mind – in a trust, you set the rules of the document during life and at death, putting you in the driver’s seat and giving you a clear path on how your assets will be managed and distributed.
Creating A Will
Unlike a trust, a will is a document that indicates how you want your assets distributed upon your death. It authorizes a trusted party to handle your affairs and execute your wishes. This party is known as an executor or a personal representative. A will includes properties owned in your name at your death. A will does not include property not held in your name, held in a trust, held as joint tenancy with rights of survivorship, or other property such as a retirement account that can pass pursuant to a designated beneficiary form.
Unlike a trust, a will must be filed with the Clerk of Court’s office, initiating the probate process. Once the probate process is initiated, the Clerk’s office will supervise the administration of the estate. The Clerk will also ensure that the executor or personal representative are administering the estate pursuant to the terms of the will.
Benefits of a Will
There are several benefits to creating a will, including the following:
- A will allows you to appoint a guardian for minors if that is not established in another document.
- A will allows you to specify your funeral or memorial arrangements.
- With a will, you can choose your executor who will be responsible for the administration of your estate and disposition of your assets.
- You can build a testamentary trust within the will to help hold your property for another beneficiary, for instance, children or disabled individuals.
Hiring A Wilmington Estate Planning Attorney
A will and a trust are great ways to plan for your estate, and you can choose one or both depending on your needs. However, we recommend a Wilmington estate planning attorney to assist and guide you through the complicated legal and tax issues that may arise when preparing these documents. At Rountree Losee LLP, we help clients throughout North Carolina establish and achieve their estate planning objectives. If you would like to schedule a consultation with one of our attorneys, please contact us online or call us directly at 910-763-3404.