Trusts vs. Wills:
Trusts and Wills are both legal estate planning documents and function in very similar ways. In order to help you better understand the advantages of a Trust, let's discuss some ways that Trusts and Wills are similar.
Appointing Who is in Charge of Your Assets:
In both a Trust and a Will, you are appointing who is going to be in charge of your assets when you die. This person is in charge of paying off all of your debts, taxes and funeral expenses and overseeing the distribution of your estate. In a Trust this person is referred to as the "Successor Trustee", and in a Will this individual is referred to as the "Executor" or "Personal Representative”.
Designating Where Your Assets are Going:
In both a Trust and a Will you are identifying the individuals who will receive your assets. These individuals are referred to as your "Beneficiaries". Your Beneficiaries might be children, grandchildren, family members, friends, church, charities or foundations. It is important to understand that in a Will your Beneficiaries will receive their inheritance at age 18. Whereas in a Trust you can designate when, where and how your Beneficiaries will receive their inheritance.
Appointing Guardians for Minor Children:
In both a Trust and a Will you can appoint guardians for your minor children. The court always has the right to approve these guardians, but with a Trust the court cannot control the distribution of the assets to your minor children. All guardianships terminate at age 18. With a Will your children will receive their inheritance in full at age 18, but with a Trust you can specify if you would like their inheritance to be distributed at a later age or several different ages.
Now let us explain the MAJOR difference between a Will and a Trust:
A Will takes effect AFTER death, whereas a Trust takes effect while ALIVE
With a Will:
Remember, the Will takes effect after death. And after death, you can obviously no longer sign your name. This creates a major problem in that there is no way to transfer your assets to your beneficiaries without court involvement. The courts involvement in the distribution of your estate after your death is called Probate.
Example with a Will:
Bill and Sue Jones have just created a Will, and are feeling great because they "think" they have their estate planning in order. Let's say that Bill and Sue are mortgaging their home, and they are both listed on the title of the property as "Joint Tenants with Full Rights of Survivorship". Joint Tenancy means that while Bill and Sue are alive, they are equal owners of the property. When either Bill or Sue pass away, the "surviving spouse" would immediately have full ownership of the property. No probate would be required in this situation. But upon the death of both Bill and Sue, probate would be required to transfer the title because neither of them are alive to physically sign the deed over to the executor of the Will.
With a Trust:
Remember, a Trust takes effect while you're alive. This gives you the ability to transfer your assets into the Trust while you can still sign your name. By transferring your assets while you are alive, you can avoid Probate.
Example with a Trust:
Bill and Sue Jones have just created a Trust. Let's say that Bill and Sue are mortgaging their home, and they are both listed on the title of the property as "Joint Tenants with Full Rights of Survivorship". Because the Trust is a "Living" entity, it can own property and assets. Knowing this, Bill and Sue will record a Deed at the County Recorder's Office for their real property. This Deed will transfer the ownership from "Bill and Sue Jones as Joint Tenants" to "Bill and Sue Jones, as Trustees or Successor Trustees of The Bill and Sue Jones Family Trust". When either Bill or Sue pass away, the "surviving spouse" continues to act as Trustee of the Living Trust...nothing changes. When both Bill and Sue pass away, the Successor Trustee (that they have chosen) can immediately act on their behalf to sell the property and distribute their assets. Probate is entirely avoided because all the assets were transferred into the Living Trust while Bill and Sue were alive.