Wills and Trusts are both estate planning documents used to pass assets on to beneficiaries at death. However, there are distinct advantages to using a Trust over a Will. Here are five ways in which a Trust is better than a Will to pass your estate to your beneficiaries.
- A Trust can be used to Avoid Probate – a Will cannot. Probate is the process of changing the title on assets when someone passes away. Assets that are owned in a deceased person’s individual name and for which there is no named beneficiary are no longer accessible once the owner of the asset has died. In order for family members to gain access to accounts or other assets in the deceased’s individual name, they must file a petition with the probate court and wait for the court to approve the Will and appoint the Personal Representative. This can be a long and costly process during which bills cannot be paid and assets cannot be managed. A Trust is an excellent probate avoidance tool because assets that are owned in the name of a Trust are immediately accessible to the trust-maker’s designated successor.
- A Trust can provide Creditor Protection for the Inheritance you Leave to Beneficiaries – a Will cannot. Many people worry that the inheritance they leave to their children will be lost to their children’s creditors such as a divorcing spouse, unpaid credit card bills, a bankruptcy, a business loss, or a lawsuit. Sadly, this is often the case when assets are distributed to beneficiaries via a Will. A Trust allows the maker to safeguard an inheritance from the reach of the beneficiaries’ creditors by keeping the assets out of the name of the beneficiary. Ownership of the assets remains in the Trust. The beneficiary will have access to the assets in accordance with the directions you leave in your Trust. You may also allow your beneficiary to serve as Trustee, allowing the beneficiary to manage her own inheritance. By leaving assets to your beneficiaries via a Trust rather than outright via your Will, you can ensure that the assets you worked so hard for will be available to your children and future generations.
- A Trust can Protect Governmental Benefits for a Person with Disabilities – a Will cannot. If you have a child, grandchild or other beneficiary with disabilities, then a Trust is a must. If you leave assets to a person who receives needs-based governmental benefits via your Will, it will place your beneficiary in the difficult position of either losing those benefits, or transferring the inheritance into a Trust of which the state must be the beneficiary at the beneficiary’s death. Unless the inheritance you are leaving is so significant that the monetary and medical benefits available to the person through programs such as Social Security and Medicaid are no longer important, then making sure that those governmental benefits continue to be available is vital. Leaving assets to a person with disabilities via a Trust is the best way to ensure those governmental benefits are preserved and that the inheritance you leave will be available to pay for expenses that are not covered by these governmental benefits, which while vital to many, are limited in their scope.
- Trusts can Reduce Estate Taxes – a Traditional Will cannot. Many married couples have so-called “I-love-you” Wills, which leave all assets outright to the surviving spouse upon the first death. If you have an estate of more than $1,000,000, then using “I-love-you” Wills means that money you think you are leaving to your beneficiaries will in fact be going to the Commonwealth of Massachusetts in the form of estate tax payable at the surviving spouse’s death. If you would prefer that your assets pass to your family, create Trusts to reduce estate taxes. Estate tax planning via Trusts for married couples is standard planning and permissible under both state and federal tax laws.
- A Trust can Administer Assets for Minor Beneficiaries without Court Intervention – a Will cannot. Leaving money directly to a minor creates an administrative nightmare because the law provides that a minor does not have the legal capacity to receive assets. The parent of the minor also does not have the ability to act as the child’s legal representative until the court says so. As such, if you die with a Will that leaves money to minor beneficiaries, the court will need to appoint a Conservator to receive that inheritance for your children. The Conservator will be required to report annually to the court and the court will appoint an overseer (guardian ad litem) to make sure the Conservator is doing his or her job for your minor beneficiaries. This means huge costs and long delays in administering funds for minors. It also means that when the minor turns 18, he or she will be entitled to receive all of those assets and will be free to do with them as he or she wishes (think fast cars, spring break, and lots of shopping). Creating a Trust to receive assets passing to a minor, or even to a young adult beneficiary, is the best way to ensure that the court is not involved in the process, that the person you want to manage assets for the beneficiary is able to do so, and that the beneficiary can use the assets only for purposes you decide are important and/or at ages that you dictate.
These are just five ways in which a Trust is superior to a Will. If you want to know more about whether a Trust is right for your situation, contact an experienced estate planning attorney to discuss your goals.
Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation. She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
© 2017 Samuel, Sayward & Baler LLC
Sherri Himel says
Would you please give me your opinion on this scenario? I understand that SSBLLC will not be held responsible for any comments or advice given to me.
Mom has Irrevocable Trusts set up for her four children. The items listed in the Trusts will be distributed upon her death; dispersing everything 4 ways and dissolving the IrrevocableTrusts. Susan, one of Mom’s daughters die. Susan leaves behind a husband and 2 children. Susan also leaves a Will leaving her 1/4 of all Trusts to her husband of 25 years. Mom starts thinking, and decides that Susan’s 4th should be split between Susan’s two children, not her husband. The 20 year old Trust documents are not changed. Everything Mom owns (investments, property, furnishings) is all listed in the Trusts, i.e. (Children’s Trust, Property Trust, Family Trust). These Irrevocable Trusts state that upon Mom’s death, the proceeds shall go to her four children OR their beneficiaries. The husband holds his dead wife’s (Susan’s) will that leaves her portion of all Trusts to him. Which takes president. The 20 year old Irrevocable Trusts or Mom’s newly revised Will?
Your opinion would be greatly appreciated. Although hypothetical right now, it does cross my mind for the future.
Suzanne R. Sayward says
Hi Sherri, It depends on the terms of your mom’s Trust. Some Trusts permit a beneficiary to name the recipients of the beneficiary’s trust share should the beneficiary die during the term of the Trust. This is sometimes called a power of appointment. However, not all Trusts grant the beneficiaries the power to direct the disposition of their shares. In those Trusts, the provisions of the Trust regarding the distribution of a beneficiary’s share if the beneficiary dies will control. Your mom should review her Trust with her attorney to get a firm answer to this question.
This response is not intended to provide legal advice or create or imply an attorney-client relationship.