The Difference Between a Will and a Trust
August 29, 2011 § Leave a comment
Everyone has heard the terms “Will” and “Trust”, but not everyone knows the difference between the two, and when you should have one or the other. Both are essential estate planning tools that serve different purposes.
First, a Will is a legal document giving direction to a Court as to who will be in charge of your affairs after your death and who gets your stuff. If you have minor children, your Will should also state who you nominate to be the Guardian of your children until they are adults. Your Will only goes into effect after your death, and your wishes as stated therein are, in effect, “guidelines” to the Probate Court. You nominate an Executor to be in charge of your affairs, but until an order is entered officially appointing that person as your Executor, you have no one who is authorized to handle your affairs. The same concept applies to the person you nominate as Guardian of your minor children.
Another important function of a Will is to waive surety. Unless you have a Will waiving surety, the person who wants to handle your affairs after your death and opens a probate estate must have either (a) a corporate surety or (b) have two individuals sign documents stating they are willing to serve as sureties for the Executor. A “surety” is a guarantee that if the Executor were to steal money or otherwise waste estate funds, the surety will be on the hook for that money. A Will can state that no surety is required, thus saving the Executor the trouble of having to get a corporate surety or two individual sureties.
So, what is a trust? A trust is a contract, or legal arrangement, whereby you name someone today to hold your assets on your behalf (in many cases, this would actually be you) with specific instructions on how to hold and distribute those assets now and when you die. There are many different kinds of trusts, with many different purposes depending on your needs. But in any case, having your assets in a trust allows you to avoid Probate.
But won’t I avoid Probate if I have a Will?
No. Even if you have a Will, your Will has to go through Probate. What having a Will avoids is having Illinois law determine who your beneficiaries are.
If I die without a Will, won’t everything pass to my spouse anyway?
Not necessarily. Property that is jointly titled will pass by operation of law to the joint owner. However, in Illinois, if you have surviving children are entitled to an inheritance as well. If there is a surviving spouse in Illinois, they are entitled to a spousal award of no less than $10,000, the right to file a “custodial claim” if you were disabled and they cared for you for at least three years, and one half of the remainder. The other half goes to your surviving children or grandchildren.
I don’t need a Will or a Trust because I have named beneficiaries on all my assets.
If you have named a beneficiary on your assets, that asset will indeed pass to the named beneficiary. But, have you considered the estate and income tax implications of your designation? What if one of your named beneficiaries passes before you? The designation will then lapse and possibly escheat to the state. Do you want to remember what beneficiary you have on all your assets? Having an estate plan that includes a Will (or Trust) alleviates that burden.
Can’t I just use a fill-in-the-blank Will form from the internet?
You certainly can, but remember: you get what you pay for. Such a fill-in-the-blank form may not take into account Illinois-specific laws. Additionally, you may have circumstances that aren’t contemplated by the people who created the fill-in-the-blank forms that are meant to cover everyone in a “one size fits all” style. You should consult with an attorney to make sure your particular needs are covered by your Will.
If I have a Trust, do I need a Will?
Yes. If you have a trust, you should have a special type of Will called a Pourover Will. In that case, the purpose of the Will is to put any assets that are not in the Trust, by mistake or for some other reason, into the Trust.
I don’t have a lot of money, would a Trust still benefit me?
Even if you don’t have a large estate, a Trust could still be useful for you. A trust is often used to do asset protection of even modest estates against the cost of long-term care. Also, if any of your beneficiaries is disabled, a Trust can be used to hold an inheritance that might otherwise jeopardize their disability benefits. Further, if you become incapacitated or unable to handle your affairs, a Trust can provide someone to care for your Trust under those circumstances.
If you are interested in finding out whether you need a Will or Trust, or both, call use to schedule a consultation at 815-570-2334.
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