When you start thinking about estate planning in Florida, the terminology can be a little intimidating: wills, trusts, powers of attorney, advance directives, living wills…
It can get confusing.
There are important differences between these estate planning tools, each accomplishing a different task (or multiple tasks in some cases) within a comprehensive estate plan. Think of each one as a different way to protect you and your loved ones.
Let’s start with the main differences between wills and revocable living trusts…
What are wills and trusts?
A will is a legal document written to accomplish the following:
- Pass on assets to intended beneficiaries after death
- Nominate a personal representative to manage one’s affairs after death
- Provide instructions for the care of dependent children (e.g., naming a guardian)
- Express any other wishes, e.g., funeral arrangements
Revocable Living Trusts are different. First of all, there are many different kinds of trusts and they each function differently and accomplish different goals. For the purposes of this article, whenever we reference the term Trust, we are referring to a revocable living trust, which is the document that is most often compared to your last will.
Trusts are not merely “will substitutes”, as you may have heard them referred to. A revocable living trust is a document that is effective when you sign it and that moves through the phases of life with you. The grantor or trustmaker of a trust appoints a trustee to oversee its contents and disburse property to the beneficiary according to instructions stated within the trust agreement. It can also have instructions for your assets while you are alive and well, in the event that you become incapacitated and finally when you pass away.
Some, but not all, of the basic purposes of revocable living trusts include:
- Avoid the probate process for transferring assets (not possible with a will that controls assets)
- Pass assets on to a beneficiary in a variety of ways (there is more flexibility in the way to leave assets to beneficiaries in a Trust than there is in a will.)
- Provide an income for a loved one who is not ready or not able to manage finances themselves
- Protect assets from creditors or their divorcing spouses
- Control property you own in multiple states
- Customized disability/incapacity instructions for yourself
- Remarriage instructions and/or protections for your surviving spouse
Main differences between trusts and wills
Do you need a trust, a will or both? That’s the big question.
We’ve already alluded to some differences between trusts and wills. Let’s consider the differences in more detail.
Trusts originated in medieval England when laws prohibited members of certain religious groups from owning property. So, instead of giving property directly to such individuals, it would be given to friends “in trust” to look after. In this way, legal ownership and the enjoyment of property were effectively separated.
This principle continues today with modern trusts, where assets such as real property, investments, and bank accounts are held for the benefit of another individual.
Legally, a trust comes into being as soon as you create it. The appointed trustee must follow your instructions to pass on specific assets to specific beneficiaries after you die or manages the assets for your benefit during your lifetime. The trustee holds legal title to the property on behalf of the beneficiary and, in this way, you maintain control over when and how the transfer is managed.
Many families decide to set up trusts for specific purposes, such as to plan for disability care for a loved one (without losing the right to government support) or to minimize taxes.
There are also differences concerning administration after death. A will must pass through the probate process in Florida before the assets of the estate can change title to the beneficiaries.
A trust, however, passes outside of probate as legal ownership has already been validated by the processes required to set it up. Just because a trust may avoid probate, does not mean it avoids administration when someone dies. A revocable living trust still needs to be administered when the Trust maker dies. This is called a trust administration, and it is a private process.
Should you have a will AND a trust?
The bottom line is that wills and revocable living trusts are both useful estate planning devices that accomplish different goals. To decide which type of estate plan will work better for your just depends on what you are trying to accomplish with your estate plan.
If you want to leave specific assets to specific beneficiaries and maintain control over when and how they receive the assets, or you are interested in giving asset protection to your beneficiaries, consider setting up a trust. With a trust, you will also want to have a pour over will as part of your estate plan. A pour over will names your trust as the beneficiary in your will to make sure that all of your assets are put into your trust (where all of your instructions are) after your death if they did not get transferring into your trust during your lifetime.
If you simply want to pass assets to intended beneficiaries upon death, in the simplest way possible, a will might be a better option for you.
Protect assets and loved ones with your estate plan
Now you know the main differences between wills and trusts, you are in a better position to begin estate planning.
Call the Law Offices of Hoyt and Bryan, LLC if you need assistance in creating your estate plan: (407) 977-8080.