What is a Trust?
According to Black’s Law Dictionary, a “Trust” is a “right of property, real or personal, held by one party for the benefit of another. Any arrangement whereby property is transferred with intention that it be administered by trustee for another’s benefit.”
More simply put, a Trust is a figurative container into which you transfer property, and the associated Trustee will then manage that property according to the dictates of the Trust.
How is a Will different than a Trust? Don’t both documents do the same thing? Not necessarily.
A Will is a general document that can address all of your estate’s assets and affairs (among other things). Further, a Will becomes effective only after you pass away. At that time, the Executor named in the Will takes control of the estate, and then manages the estate’s affairs such as paying outstanding debts and distributing property to your family members.
A Trust, on the other hand, is a very specific document that addresses only the property held in that Trust, which is managed by a Trustee. Also, unlike a Will, a Trust can become effective during life. For example, you can create a Revocable Trust into which you can transfer your assets today. By doing this, assuming the Trust and the transfers are valid, any assets held in Trust will not need to pass by a Will and probate proceedings after you pass away. The Trust will stay active. Thus, some families prefer the probate-avoidance strategy that a Trust can provide. The downside of such a strategy, however, is that you’ll have to pay a significant fee upfront for a Trust. This means that you’ll incur significant estate-related expenses during your life. Because of that, some families prefer to only incur the relatively inexpensive cost of Will during life, and to then defer estate-related probate expenses until after they die (and no longer need the money, which can come from their estate).
On a related note, even an estate plan that includes a Trust must absolutely still contain a Will. Why? If the Trust is invalid, if an asset transfer to a Trust is invalid, or if certain property was never transferred to the Trust in the first place, then that property must transfer by non-Trust means. In this scenario, your assets and your family could be protected by the surefire backup that an accompanying Will can provide. If an accompanying Will does not exist, however, then any outstanding property would transfer according to Texas law by the rules of “descent and distribution.” This significantly complicates things, and makes post-death property transfers much more expensive than they would’ve been with a valid backup Will in place. Further, most people do not want Texas law to control the distribution of their property. They want to control that distribution themselves according to their estate plan. Even more, a Will can manage additional non-property issues such as designating a Guardian for your children (among other things). Any decent estate plan, even those that contain Trusts, must contain a Will.
Also, there are many different kinds of Trusts, each of which serve unique purposes. Many families who want a Trust to avoid probate will only need a Revocable Trust (as discussed above). Families with special-needs children will need a Special-Needs Trust, which will preserve a special-needs child’s right to Medicaid assistance while also providing ongoing assistance from the Trust itself. Wealthy families might need a combination of Trusts such as QTIP Trusts or Credit Shelter Trusts.
Ultimately, there are a variety of ways to plan your estate such that your assets will be protected, and your wishes will be implemented after you pass away. Each strategy has its own advantages and disadvantages, some of which we have discussed in this article.