Published by Beth Schanou, Director of Wealth & Estate Planning
Estate plans can be structured differently depending on a person’s situation and intentions. What is the difference between a will and a trust? A will and a trust are separate documents to pass assets to heirs after death, but they are administered differently and have varying advantages. When you boil it down, both a will and trust are a set of instructions, but choosing which document should be the centerpiece of an estate plan requires some thought.
Most people are familiar with a will but get confused when a trust is introduced because a trust can be created within a will (testamentary trust) or in a standalone document (inter vivos trust). For purposes of this, I am referring to an inter vivos trust. Such a trust can achieve many of the same things a will does and is used in conjunction with a will. If a person wishes to use a trust as the centerpiece of their plan, the purpose of their will changes and takes a backseat to the trust. This is when the will is called a pourover will because it simply pours over any assets to the trust not funded to the trust during the person’s lifetime.
Wills and trusts are administered differently even though they may include many of the same provisions. A will must be admitted to probate before administration can begin, and the estate is closed once all the statutory requirements are met. Alternatively, the successor trustee can administer a trust through a less formal process. So what about the pourover will accompanying the trust? It is a necessary back-up to transfer assets to the trust which were not funded to it during the person’s lifetime or through a beneficiary or Pay on Death (POD) designation. Typically, the goal is for the pourover will to remain unused. In order for the goal to be achieved, there can be no assets titled to the person’s individual name or assets lacking a beneficiary designation of someone other than the estate. In other words, all assets should be titled to the trust or payable to the trust or other beneficiary.
An estate plan with a will is usually cheaper to implement than a plan with a trust but requires some work and expense on the back-end to administer the estate. If avoiding probate is desired, a trust might be used, and assets should be funded to or payable upon death to the trust to ease in post-death administration. Other considerations in determining which structure may be more appropriate include:
- Number of states in which real estate is owned
- Whether there are minor children
- Desire for private administration
- Commitment to making titling changes
- If the marriage is not the first for each spouse or there are children from a prior marriage
We recommend engaging an estate planning attorney to navigate through the decisions required in creating an estate plan. The attorney can provide guidance in properly structuring the plan depending on each person’s goals and intentions.
This material was created for educational and informational purposes only and is not a substitute for individualized legal advice.
