A person's last will is a document that contains her directions as to what she wants to happen to her property after her death. A living trust, also called an "inter vivos" trust, is a conveyance of property -- during a person's lifetime -- to a trust in order to avoid probate, reduce taxes and other reasons. While wills and inter vivos trusts can both dispose of property, there are many differences between each type of document.
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Title and Time of Transfer
When a person sets up a trust, the conveyance occurs at the time of execution of the trust document. The person making the trust, called a "settlor," gives title to the property to another person or entity to hold for the benefit of a given beneficiary. While legal title is in this holder of the property, called a "trustee," equitable title, or the benefit of the property, lies in the beneficiary. With a will, however, both equitable and legal title remain in the person making the will, or "testator," until he dies. Before he dies, the property remains available to creditors and is subject to attachment and sale to satisfy claims against the estate.
Revocability and Control
A will is freely revocable by the testator at any time before his death. As he is conveying nothing during his lifetime simply by making his will, he needs give no notice to anyone that he is eliminating beneficiaries, changing their entitlement or otherwise changing the will. An inter vivos trust, however, may or may not be revocable. While a settlor retains some level of control over trust property through his right to cancel a revocable inter vivos trust, an irrevocable trust eliminates this control. Revocable trusts, however, may not protect the property from a settlor's current creditors or bankruptcy, but irrevocable inter vivos trusts may cause gift tax liability.
One of the major concerns in choosing an inter vivos trust over a will is avoiding probate. Unless an estate is small enough to take advantage of a given state's no-probate threshold, a will must be submitted to probate for administration, which places the identity of the beneficiaries, the decedent's assets and the claims against the decedent's estate on the public record. Unless challenged, a trust can be administered without court supervision and outside the public eye.
Both wills and inter vivos trusts require some trustworthy individual to give effect to the will or trust document. In a will, this individual is called a "personal representative" or "executor." With a trust, that person is the trustee. Executors and trustees both owe a fiduciary duty to see that the requirements of the will or trust are met. Both are subject to suit by beneficiaries or heirs thereof in the event of malfeasance. Both executors and trustees may receive a fee for their services. Finally, neither setting up a trust nor drafting a will necessarily avoids estate taxes, although both documents can be drafted by experienced attorneys so as to minimize gift and estate tax liability.
References & Resources
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