The question I am most often asked is the difference between a will and a trust. And it’s a very simple one. A trust and will both control assets and can put limitations on assets, but a will goes through probate while a trust does not. I’ve written a lot on these differences and I often emphasize that a trust is about control and not always necessary. However, while it may not always be the best decision for my clients depending upon a personal cost benefit analysis, it is always the best legal choice.
Beyond just providing control for those who need it, it also simplifies an estate plan in a few major ways.
First, it allows one person to be in control of all of the assets. Now, this may not be a problem in regards to liquid assets, but it often times does cause a problem with real estate. In Missouri when a married person is listed on real estate, his or her spouse must also sign off on any transaction of that real estate. So, when a beneficiary deed is used to transfer real estate, everyone listed on the deed, plus all of the spouses, must sign off on the sale of that real estate. That can be a lot of people involved in one small transaction. A trust prevents disagreements and everyone having to agree at once by allowing one person to make the final decision.
This also is important when it comes to final expenses. If life insurance or other liquid assets are left to multiple people, there is no set legal requirement everyone share the final expenses. Even worse, if an extra asset is left to a beneficiary with the intent that they use it for final expenses, they are not obligated to use it either. This can cause a lot of resentment if they choose to keep that money and force someone else to pay for those final expenses. A trust avoids this problem, by requiring one person to pay those expenses before all the beneficiaries get their share.
Secondly, while assets are in the trust, those assets are protected for the beneficiaries. That means that creditors and divorces cannot get to the money while it is in the trust. As soon as the money is distributed to the beneficiaries, it is fair game, but the trust can at least protect it for a certain amount of time.
Another great reason for a trust is when beneficiaries are not receiving equal amounts. Throughout a person’s life money can be accumulated in real estate, investments, retirement accounts, etc. Often times, the allocations between these assets varies over time. So, if money moves between assets and the beneficiaries on those assets are different, the amounts the beneficiaries receive will also change. As such, assets held outside a trust and given to different beneficiaries must be reviewed on a regular basis to make sure the amounts are still the correct amounts for the listed beneficiaries.
Finally, changes to a plan happen and can often happen on a regular basis. If a trust is not used, the changes may require multiple changes to multiple different assets. However, with a trust, often the trust simply needs to be changed rather than making changes on every asset owned.
The simplicity of an estate plan with a trust makes it the best legal option. But everyone’s plan and needs are different and while a trust may be the best, it may not be the best practical option for everyone’s benefit. To determine what plan is right for you or a loved one, an attorney can explain different options and help you decide the practical choice for your family.