What is a Will?
A will is a written instrument by which a person disposes of assets upon death. Assets might be the house, household goods, automobiles and any bank or investment accounts. The persons or charities that receive the property through the will are called beneficiaries. The will is generally in writing and also revocable, or cancellable, during life and can easily be changed as circumstances change. To transfer assets after death, a will is generally filed through the probate court and assets are transferred to beneficiaries through the probate process. This is the most commonly used vehicle to transfer assets on death.
Assets with a beneficiary designation, such as life insurance proceeds, bank accounts or 401K's, will pass directly to the beneficiary upon death without the need for probate.
What is a Trust?
A trust is also a written instrument and can dispose of assets upon death. Trusts can either be set up during life or included in a Will and established upon death. The best reasons to use a trust are if property is owned in more than one state or if there are estate tax concerns. A trust can hold the property titled in the name of the trust upon creating the trust. Many people form trusts and never actually fund them. A simple description of a trust is that it is similar to a box. If the box is empty, so to speak, then it is an unfunded trust because no property has been titled in the name of the trust. Every trust must include a pour over will which ensures that any property, which was not titled in the name of trust at death, can be transferred into the trust upon death. Many people do not understand that an effective trust should be funded during life because if it is not funded, upon death it will need to be funded. The way to fund a trust after death is to probate the will to add the assets to the trust. Therefore, trusts do not always "avoid" probate as some advertise. Many people do not like the fact that their assets must be titled in the name of the trust. Further, estate tax limits are so high at this time, often a trust is not needed for tax purposes.
Assets with a beneficiary designation, such as life insurance proceeds, bank accounts or 401K's, will pass directly to the beneficiary upon death without the need for probate.
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