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.
An authentic document is one that you state considers to be a legal representation of your wishes.
A Last Will and Testament
- If you have a will, most states require your estate representative to file the original copy with the probate court.
- If the original copy cannot be found, some states will consider you to have died intestate.
A Living Trust
- If you have a living trust, copies of your living trust are considered authentic, binding documents.
A trust is an agreement creating a legal entity that can own property. Trust agreements are private documents. They are generally not filed with a court or other public entity.
Q. How do you create a trust?
A. There is no specific form used to create a trust. In general, a trust is made when:
- The trust document is signed by the person making the trust, called “the Settlor”; and
- the trustee changes the title on property being held as an individual to a title held in the name of the trustee.
Once the trust is made, the agreement may be amended and/or revoked, usually only by the person who originated the trust, e.g., the Settlor.
The trust agreement specifies:
- The person who is in charge of managing the trust assets. This person is called the trustee. If a married couple create a trust, they may be co-trustees.
- The duties and powers of the trustee relating to how certain assets are to be held and managed. Once assets are titled in the name of the trustee, the trustee may then manage the assets based on the powers described in the trust agreement.
- The beneficiaries and the conditions on which the trustee is to distribute certain assets and certain parts of assets (i.e. income and principal).
- The name of the successor trustee. The successor trustee has the legal authority to take control of trust assets when the original trustee or co-trustees die or become incapacitated.
What is the responsibility of a trustee?
When creating a trust managing family affairs, many of us designate a family member to serve as the trustee. A surviving spouse. The eldest child. In many cases, a family member does this job without compensation.
If you have agreed to serve as a trustee, you may not really know what you just agreed to do. You might even assume there is no legal risk in agreeing to serve as a trustee.
It’s not easy to find articles describing the job of a trustee that is not filled with legalese. This articled titled “A Novice Trustee Primer” does a great job of describing the responsibilities of a trustee and is is recommended reading if you have a trust, are thinking about setting up a trustee, or if you have agreed to serve as a trustee.