A prospective client recently asked me, “What is the difference between a trust and a will?”
Of course, a lot of differences immediately came to mind. For example, complexity, cost differences, tax savings, and probate avoidance, to name a few. But the man wanted a short answer, so I told him in a single word: control.
A trust gives you control: a will does not.
With a basic will, you can direct who will receive your estate after you die. But that’s all. You cannot control how your heirs will use their inheritance after they receive it: they can use it however they choose. They can give all of your hard-earned money to their boyfriend/girlfriend, invest it all in a risky business venture, or give it all to Cat Welfare if they want to. Once your estate is settled and distributions are made, you have absolutely no control over how the money will be used by your heirs.
A trust offers you much greater control than a basic will. With a trust, you not only control who gets your money, but when they will receive it and how it will be used. By setting up a trust, a you can incent your children to accomplish various objectives: complete a four-year college degree; produce a grandchild; or pursue a career in the family business.
This is why trusts are so appealing to persons who like to be in control. It’s also why trusts are particularly useful in situations where there are very legitimate reasons to delay the outright distribution of your estate to your heirs.
A trust can be used to manage and delay distribution of an inheritance to minor children, or to young adult heirs who still lack the maturity to manage money wisely. Trusts are also ideal in situations where your child simply cannot seem to manage money well or has a substance abuse problem.
Trusts are also an ideal tool for use in second marriages, where you desire to provide for your spouse during his/her lifetime, while still ensuring that the children from your first marriage receive what is left of your estate after your spouse dies.
Of course, with greater control comes greater cost and complexity. Being a trustee is a much greater and longer-term commitment than being an executor. Many individuals who might be willing to serve as an executor of a friend or family member’s estate might be reluctant to take on the long-term commitment of serving as trustee for five or ten years, or even longer.
Corporate trustees offer the security of knowing that a trust will be properly managed, and that nobody will be dipping into the till. But for smaller trusts, the higher corporate trustee fees may not be warranted.
An expert estate planning attorney can discuss with you the pros and cons of various estate planning tools in light of your personal situation and testamentary objectives.
Willi Law Office, LLC, has been providing personalized legal services to individuals and businesses in Central Ohio for over 25 years.