If you don’t understand the differences between a will and a trust, it may cost your surviving spouse a great deal of money.
A Last Will & Testament
If your estate is subject to estate taxes and you leave your property directly to your surviving spouse, he or she loses the multimillion dollar federal tax exemption.
If you have a trust, the trust instructions can set up new trusts when you die, sometimes referred to as A/B Trusts.
The use of the A/B trust enables both you and your surviving spouse to claim their federal estate tax exemption allowance, potentially saving the estate hundreds of thousands of dollars. See the estate tax section for more information.
Your will and your trust are both important in determining what will happen to your assets after your death and the death of your beneficiaries.
A last will and testament
When you die:
- A will generally describes who inherits certain assets after your death.
- If you leave property outright to someone in a will, they become the owners at the conclusion of probate .
- The executor may not be able to take control of probate assets without approval of the probate court, which may take some period of time.
- The intended time frame of probate is actually as short as possible; the process is not intended to allow an executor to spend years managing the assets in the estate.
When your beneficiary dies:
- When your beneficiary dies, their will or state intestate succession rules determine who will inherit the property you gave them, assuming they have not transferred or sold it prior to that time.
A living trust or a testamentary trust
When you die:
- A trust can include instructions giving someone the right to income and the use of the property during their lifetime.
- A trust agreement may include elaborate directions regarding the management of certain trust assets and may contemplate an administration that lasts a very long time.
A trustee can take immediate control of trust assets.
When a beneficiary dies:
Your trust can leave instructions on who has the right to income and the use of the property when the first beneficiary dies. There are many situations in which you may want to control the second instance of inheritance:
- You want to provide your children with income but you want the assets to go to your grandchildren. If your children marry, your grandchildren’s inheritance cannot be je0pardized by a possible divorce.
- You have been married before. You want to provide income for your surviving spouse but also want to be sure your children from your prior marriage inherit some portion of your assets when your surviving spouse dies.
- You want to be sure your children inherit your separate assets if you die first, eliminating the opportunity for a spouse or step children to claim rights to your separate property.
- You have minor or disabled children and you want to provide for their support and choose when or if they inherit the principal.
WHAT IS A LAST WILL AND TESTAMENT?
A will is a written document, signed by the author and witnesses, that meet the requirements of the state in which the author resides.
- The author can document the beneficiaries whom he or she wants to get his probate estate.
- The author can designate a personal representative to administer the estate and follow out the author’s wishes.
- In many states, parents must name a guardian of minor children in a Last Will and Testament.
- The author can request the probate court waive the requirement for a surety bond for his or her estate representative.
- The author can include instructions to set up a testamentary trust to manage beneficiary assets rather than giving assets directly to the beneficiary.
Wills usually require a probate process assuring the instructions in the will are carried.
Q. How does the probate court determine the will is authentic?
A. In many states, the estate representative must be able to show the original will. If the original will cannot be found, some states will consider the author to have die intestate.
Some states require the witnesses who originally signed the will to attest they watched the author sign the Last Will and Testament.
Q. What is the difference between a Will and a Trust?
A. Both a Will and a Trust allow you to name someone to manage and distribute your property to your beneficaries when you die. You can find out the difference here.
Q. How do you make a Last Will and Testament?
A. You can visit an attorney who specializes in estate planning. Some people prefer to do it themself and use web-based or PC-based software to create their last will and testament.