Maryland Trust Attorney Discusses the Differences Between a Living Trust and a Will
We have all heard that it is important to have a will or trust, but many people do not clearly understand the differences between the two documents. In this article, a Maryland trust attorney discusses the differences between a living trust and a will.
Avoiding Probate
When a person dies, the estate must go through the probate court process under two circumstances:
1. If the person did not leave a will. Dying without a will or trust makes a person intestate. In this situation, state law will determine who gets the deceased person’s assets.
2. If the person had a will. The register of wills will have to issue letters that appoint someone to administer the estate and take the case through probate. The probate court also oversees the many steps of the process to make sure that all interested parties get the appropriate notices, valid creditors get paid, and the remaining assets get distributed according to the terms of the will.
With a trust supplementing a person’s will, the assets held in the trust bypass probate administration, and the trust assets usually do not have to go through court review. The trust agreement need not get filed. The assets not held in the trust will go through probate and the estate administrator must notify interested parties and creditors, pay claims, and distribute estate assets according to the will, but typically the estate assets will be passed through to the trust for ultimate disposition outside of court. Rarely will a person have no assets outside the trust, but ideally the value of the non-trust assets is sufficiently small to allow streamlined probate administration as a “small estate”.
Privacy in Estate Planning
A will has to get filed with the register of wills so the register or judge can determine its validity and make sure the estate administrator follows the document. When filed, a will becomes public record. While courts typically require a person to have a legitimate reason to access a will in the court’s file, some people will be able to read the will. If the will is supplemented with a trust, however, the will can provide that estate assets “pour over” to the trust leaving the trustee to distribute the estate assets in a manner not disclosed in the probate file and not available to the public.
Unless someone files a lawsuit challenging a trust, the document rarely gets filed with the court. Because trust agreements do not become public records if they do not get filed with the court, trusts are more private than wills.
Incapacity and Estate Planning
You can change your will throughout your lifetime if you have the legal capacity to do so. For this reason, a person’s “last will and testament” does not come into effect until the testator’s death. A testator or testatrix is a person who makes a will. A will does not provide the testator any benefits during the lifetime because it has no legal effect while the testator is alive.
Depending on the document, a living trust can protect a person during his lifetime. You might name yourself as the trustee of the trust so you can manage the assets. Most people also name at least one successor trustee.
[Related: Top 50 Estate Planning Questions Answered]
The successor trustee could handle your financial matters if you become incapacitated, either temporarily or permanently, during your lifetime. Also, you can set up a living trust to appoint someone to take care of your money and bills for your convenience.
Let’s say you want to sail around the world, do a tour in the Peace Corps, or pursue some other dream without having the bother of daily money management. You could set up a trust to have an individual or professional take care of those things for you. A will does not provide this option.
Make Arrangements for Your Minor or Disabled Children
If you die before your children reach the legal age of majority, a will cannot distribute assets to them until they are no longer minors. The court will have to set up a trust for them unless your will references a testamentary trust.
With a living trust, you can set up a trust for your children and distribute the assets to them according to the terms of your choosing, as long as the terms do not violate the law. For example, you can say that your children will receive part of their inheritance when they graduate from college and part of it at age 30.
If you have a disabled child, you can set up a special needs trust. This type of trust can provide funds that can improve your child’s quality of life without making him ineligible for government assistance programs. If you leave your disabled child assets through a will, the bequest might disqualify the child from receiving essential public benefits.
Protect a Child with Addiction or Money Management Challenges
Spendthrift trusts can supervise the distribution of assets to a child who might blow through an inheritance quickly. When a person with poor money management skills, gambling, or addiction issues receives a windfall inheritance all at one time through a will, he might spend it in short order and become destitute. A will provides no protection in this situation, but a spendthrift trust can limit the distributions to amounts needed for things like living expenses.
Titling of Your Assets
When you write a will, your assets still belong to you. You do not have to change the title of the property that will get distributed through the will.
A trust only includes assets that the trust creator titles into the name of the trust. When you set up a trust, you have to retitle all of the assets into the name of the trust if you want them to pass through the document. As the trustee, you can still do pretty much whatever you want with the assets, as long as you do so as the trustee and the trust is revocable.
A Maryland trust attorney can explain which estate planning document would be best for you and answer your questions about the different types of trusts. Contact Steve today for more information.
