Trust funds and wills are both estate planning documents.
The average person has likely heard of last wills and trust funds.
Last wills receive attention as plot devices in books, television shows, and films.
Trust funds are often mentioned when people discuss families with generational wealth, like the Rockefeller family.
While these contexts can provide a cursory knowledge of these documents, an estate planning attorney must understand how they work, how they relate to the laws of the state, and how these can be set up to accomplish the goals of their clients.
According to a recent SmartAsset article titled “Trust Fund vs. Will: Which Is More Essential For Estate Planning?” how an estate plan functions depends on the type of document used.
What makes each unique?
A trust fund is a legal entity created for managing and holding assets.
Organizations or individuals can fund trusts.
Trust funds require a trustee to be designated to manage the assets held by the trust to benefit the beneficiaries.
Trusts can have single or multiple beneficiaries.
Do beneficiaries have to be people?
Organizations can also be listed as beneficiaries of a trust.
Trusts can be funded with various assets, including real estate, investments, cash, and other types of property.
The trustee must oversee the use of these assets and act according to the trust guidelines.
Because the trustee must follow the rules outlined by the trust, the trustmaker can maintain significant control over the trust assets in life and death.
Trust funds come in a variety of types.
These types govern the protection given to the assets and the functions of the trust.
What are some examples?
While a revocable trust provides the most flexibility, an irrevocable trust affords the highest degree of protection by completely removing assets from the taxable estate.
Special Needs Trusts are used to provide for loved ones with disabilities while simultaneously protecting their eligibility for government assistance.
How do these differ from last wills?
While last wills are legal documents, they are not simultaneously legal entities.
Instead, they serve as a legally recognized set of instructions for the distribution of assets and the naming of executors for the estate and guardians for any minor children.
Unlike the trust fund, a last will is only effective after the death of the person who created it and requires probate.
Because it must be submitted to the probate court and approved by the judge, a last will becomes a public document.
In contrast, the terms of a trust fund can remain private.
Because last wills are governed by and must address laws specific to the state of residence for the testator, it is essential to work with a local and experienced estate planning attorney.
Correct titling of assets is important to estate planning regardless of whether a trust or last will is used.
DIY estate planning is rarely effective.
Reference: SmartAsset (Oct. 10, 2023) “Trust Fund vs. Will: Which Is More Essential For Estate Planning?”