Jennifer Mahe: Estate planning: The difference between trusts and wills
For the Nevada Appeal
One of the most common questions that people ask when they start the process of preparing their estate plan is whether they need a Trust or a Last Will and Testament.
Not surprisingly, the answer to that question varies for each person based upon their desires following their death and the overall value and type of assets that they own. In considering whether to utilize a Trust or a Last Will and Testament the first step is to understand the differences and primary functions of each.
A Last Will and Testament is designed to transfer an individual’s assets after death.
If an individual utilizes a Last Will and Testament, then the individual owns all of their assets during their lifetime and designates in the Last Will and Testament the individual or individuals who will inherit their assets following their death.
Because title to the assets remains with the individual, who once is deceased cannot sign documents necessary to transfer the assets, the court process known as probate is necessary.
The type of probate necessary is determined by the total value of the individual’s estate and can vary from a summary proceeding to a full probate. If a full probate is required it is likely that multiple filings and hearings with the Court will need to occur. Accordingly, probates can sometimes be time intensive and expensive.
Of course, probates have the advantage of allowing court oversight and input if the parties involved might benefit from such oversight and input. At the completion of the probate, an order is entered by the Court transferring the assets to the appropriate individuals.
Like a Last Will and Testament, a Trust is designed to transfer an individual’s assets to designated beneficiaries after death.
However, it accomplishes that task in a much different manner. A Trust is created during the individual’s lifetime. The individual is typically identified as the Trustee during their lifetime and thus controls the Trust.
Immediately upon execution of the Trust, the individual transfers their assets, including but not limited to their home, cars and bank account, to the Trust. Thus, during the person’s lifetime the Trust owns all of their assets and the individual controls the assets by controlling the Trust. When the individual dies, the Trust, which owns the assets, continues on and thus the issue identified with a Last Will and Testament, that after death no one can transfer the assets, does not exist for the Trust.
Instead, upon the death of the individual, control of the Trust transfers to the individual or individuals identified as Successor Trustees. The Successor Trustees can then pay debts and distribute assets pursuant to the terms of the Trust.
For many people the primary advantage to creating and utilizing a Trust as an estate planning device is that it allows an individual’s loved ones to avoid the potential cost and time necessary to complete the probate process.
Nonetheless, in order for a Trust to provide that benefit, it is essential that during an individual’s lifetime they pay particular attention to the title to their assets. The Trust will only function to avoid probate if the individual carefully ensures that all assets are titled in the name of the Trust.
This inevitably sounds easy but is often quickly forgotten. For example, when a new business is created, a new bank account opened or a new home purchased, the individual must remember to ensure title to the new assets is taken in the name of the Trust even if the new asset is acquired decades after the Trust is formed.
Thus, whether a Trust or a Last Will and Testament is appropriate depends upon each person’s long term goals and their personal circumstances.
Additionally, depending upon a person’s personal circumstances factors such as tax liability, the types of assets held and creditors must be considered in deciding upon the appropriate estate plan.
Jennifer Mahe has practiced law in the Northern Nevada area since 2005 focusing on general civil matters such as real estate, business, litigation and estate planning. She can be reached either via the Mahe Law, Ltd. website, http://www.mahelaw.com, or at 775-461-0992.