By now, most people have at least heard the word “trust” in conjunction with estate planning. However, many people do not fully understand the role a trust can play and why it may be a critical document to have in their estate plan.

The difference between a trust and a will.
In many cases, the confusion relates to how a trust differs from a will and why many estate planning attorneys recommend that you have both a will and a trust. A will disposes of your property when you die. A trust does the same thing and in fact, many estate planning professionals call a trust a “will-substitute.”

Advantages of a trust over a will.
The answer relates to two primary advantages a trust has over a will. Yes, a trust disposes of your property when you die just like a will. However, a will only becomes effective when you die. Its primary function is to contain the dispositive provisions regarding the distribution of your assets at death.

A trust, on the other hand, is effective immediately. That is, from the date you sign the trust, it can hold title to your assets. This process is called funding. As a result, in the event of your incapacity during lifetime, the successor trustee (the person or financial institution you have named to serve on your behalf in the trust in the event you no longer desire to or are able to serve on your own) can act on your behalf to manage the assets held in the trust.

Many planners call this the “management assistance” advantage to having a trust in place. Because a will is only effective at death, this benefit does not exist with a will. With a trust, however, there is a mechanism in place that will offer assistance upon your incapacity during lifetime.

The second advantage of a trust is that any assets held in the name of a trust at death are not considered to be “probate assets.” That is, there is no probate required to transfer title to your beneficiaries if they are in the name of your trust when you die. A probate proceeding is a court process whereby a probate judge oversees the handling of your final affairs. In Michigan, a probate is a public proceeding and in some instances may be costly and delay the distribution of your assets to your loved ones. Again, this advantage is not available with a will. A will covers assets held in your name alone when you die. These types of assets must go through a probate proceeding.

Do you need both a trust and a will?
Because of the two advantages of management assistance and probate avoidance, many people are well served to have a trust document be a part of their basic estate planning documents. Please note, that a will is just as critical a tool. For example, it is the document wherein you name a guardian and conservator for your minor children. In addition, it is a very common occurrence for someone to die without funding all of his/her assets in the name of the trust and thus, a will is necessary to deal with the distribution of those assets that may be held in your individual name at death.

In the end, consultation with your estate planning professional, who is familiar with your particular situation, is necessary to know what documents best suit your needs. However, when going through the estate planning process, it is important to be aware of the differences between wills and trusts and the roles each play.

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