The Basics of Wills and Trusts

What is the difference between a Will and a Trust?

A will is a written legal document intended to be submitted to the probate court upon your death with instructions on how you want your estate (probated assets and outstanding obligations) administered. A trust is a legal arrangement (generally private whereas a Will becomes public record) with three sometimes overlapping parties (see below) that all play distinct roles. Trusts are created by the “trustor” or “grantor” and instruct the trustee on how to administer assets. Unlike a living trust, which is created during a person’s life, a testamentary trust is established via the Will (in other words, the testamentary trust is created via public court process after a person dies and therefore is not preferred since a living trust can accomplish the same goal without the hassle and expense associated with a testamentary trust).

Who does a Trust affect?

All trusts involve three different parties: the trustor/grantor/settlor, the beneficiary, and the trustee. The grantor is the person that creates the trust, the beneficiary is the person who receives the assets (or the benefit of the assets), and the trustee is the person who handles the trust and manages assets until the trust is terminated or dissolved. Interestingly, in a living trust scenario, the grantor, beneficiary, and trustee are typically the same person during the remainder of the person’s life. It is usually only after said person dies (or becomes incapacitated) that the roles shift to other persons. For example, a father may establish a revocable living trust which states that he is the primary beneficiary of any assets placed in his trust during his life, but upon his death, such assets are to be distributed equally to his children. In such scenario, the father would often wear all three hats initially (the grantor who created and funded the trust, the beneficiary who receives the benefits of the assets held in trust during his lifetime, and the trustee who has authority to manage such assets held in trust), but once the father is no longer able to serve as trustee and/or has died, then he may have another trusted family member step in as trustee and such assets can then be used for the benefit of his children (thereby shifting the trustee and beneficiary roles accordingly.)

Why should you set up a Trust when you have a Will?

Unlike a Will, which passes through a court-supervised estate administration process, a living trust allows you to bypass such public, time consuming and costly process. In other words, you can place real estate in a trust so that your children can immediately take control of the real estate without requiring a formal court procedure. A trust can also be used as a tax credit shelter, which is a popular feature in Massachusetts since the estate tax threshold is so low (currently only $1 million at the time of this writing). Since most clients have real estate, a retirement account, and possibly life insurance, it is very easy to exceed that $1 million threshold. Therefore, the trust offers the ability for the surviving spouse to preserve the predeceased spouse’s $1 million exemption amount while still being able to use those trust assets for the benefit of the spouse. This effectively allows a married couple to pass up to $2 million dollars to their children without Massachusetts estate taxes (assuming everything goes as planned and there is no change in Massachusetts estate tax law). A third reason for a trust is that it can provide additional asset protection features, especially for third-party beneficiaries (such as your children). This is most applicable when you are leaving  a considerable amount of assets to a child who is too young or financially immature to receive all the assets outright, or if you are concerned the assets could be attached in the event of a creditor or divorce situation. 

With all that being said, a Will is still important to have because a Will appoints a personal representative who is legally responsible for anything that falls through the cracks or is not accounted for in your trust. For example, if you have a wrongful death lawsuit (the cause of your death), then it is the personal representative who would be legally authorized to carry out your interests. Similarly, the personal representative would be in charge of any other creditor, legal, or tax matters associated with your estate. Most importantly, if you have minor children, a Will should still be used to name the guardian/conservator of such children in the event that you die prior to them attaining age 18.

Interested in learning more about Wills and Trusts? Call (781) 202-6368 or email JLento@PerennialTrust.com to schedule your free estate planning meeting.

I’m always happy to answer any questions you may have.

Sincerely,
Joseph M. Lento, J.D.
Attorney & Owner of Perennial Estate Planning

Other helpful sources:

Carlson, Darren R. (2014). Your 1960S Tv Guide To Estate Planning. MOTIVATIONAL Press, INC. 

Understanding living and testamentary trusts in Massachusetts. Casey & Lundregan, P.C. (2019, September 12). https://www.caseylundreganlaw.com/blog/2017/03/understanding-living-and-testamentary-trusts-in-massachusetts/. 

What is a Testamentary Trust? Baker Law Group P.C. - Estate Planning. (2021, March 8). https://mbakerlaw.com/what-is-testamentary-trust/.