A will makes a one-time transfer of assets after death, while trusts allow assets to be transferred during life and after death. Each one has an important role to play in managing assets and protecting loved ones, reports an article “Estate vs. Trust: Do You Really Understand the Difference” from yahoo!.
An "estate" generally is all the money and property a person owns at the time of death. But an estate may have many different parts. For example, we may talk about the probate estate, or the taxable estate, or the augmented estate. Some of these categories are separate and some overlap. Assets in a revocable trust are still part of your estate. In the broadest sense an estate plan is just a proposal for achieving the goals you have for managing and distributing your estate.
In the article above, the “estate” it is talking about is the probate estate. Generally it is everything you own at the time of your death. It doesn’t include anything you own together with someone else as a joint tenant with rights of survivorship. It also doesn’t include any assets with beneficiary designations. These are assets transferred or otherwise assigned to pass to another person when you die. Your heirs are anyone who receives money, personal possessions, or any other assets from your estate.
Let’s say a woman named Penny dies. The home she owns with her husband is not part of her probate estate, since it now belongs solely to her spouse. Anything she gave away while living is not part of her probate estate. Her probate estate owns anything she independently owned at the time of her death.
A probate estate is a temporary legal entity existing only to make a one-time distribution of the assets of a decedent. Once the assets have been distributed, the estate is closed. This doesn’t mean estates are short-lived. Some estates take years to settle, depending upon their complexity and how well-prepared the estate plan was.
Probate estates are distributed in two main ways: by the will, also known as the last will and testament, or by the legal chain of inheritance. A will contains a set of instructions for who gets the assets of the estate. If the deceased has a valid will, the estate is distributed under these terms.
If there is no will, the person has died intestate and assets are distributed according to state law. Most of the time, this means assets go to the next of kin. In most states, spouses have the top spot in the line of inheritance, followed by biological children, then parents, then extended family. The spouse often gets one half of the estate and the children divide the balance.
A trust is a legal entity holding and distributing assets according to the directions in the trust. The person who creates the trust, known as the “grantor,” establishes the conditions and may give whatever they want, at whatever time they specify. A trust is independent of the people who create and fund it. Assets placed in the trust belong to the trust until they are distributed.
Let’s say a person named Edward wants to create a trust for certain family members’ college expenses. He could set up a trust with his estate planning attorney, then fund it with $6 million. The trust could be overseen by his attorney acting as the trustee. The trust names children, nieces and nephews as beneficiaries. They ask the trustee for money to pay college tuition, and the trustee handles the distribution.
The trustee has the job of making sure the monies are used in the manner prescribed by the trust. Therefore, in this case, the attorney may decide to only make distributions directly to colleges to pay for tuition. The trustee is a fiduciary and their first responsibility is to carry out the instructions in the trust.
Trusts can be set up while you are living and they can survive the creator’s death, unlike a will. When a person who has set up a trust dies, the trust continues until it runs out of assets or until its terms dictate it be dissolved.
An estate plan exists to distribute assets and can include both trusts and plans for probate assets. However, they do work in very different ways. Your estate planning attorney will guide you as to how these two entities work together for your unique situation.
Reference: yahoo! (Nov. 9, 2022) “Estate vs. Trust: Do You Really Understand the Difference”
