Wills and trusts are both legal documents that play important roles in estate planning. But there may be times when a will and a trust include provisions which conflict with each other. In such cases, the issue that has to be decided is whether the terms of a will supersede a trust.
Here's everything you need to know.
What Is a Trust?
Before looking into when a will supersedes a trust, or vice versa, it's important to understand what is meant by the term "trust." When it comes to estate planning, the two primary trust vehicles you will be looking at are the testamentary trust and the living trust.
Testamentary trust. A testamentary trust is a trust that's created by the provisions of your will. Because your will does not take effect until after your death, and testamentary trusts are not created until your will comes into effect, a testamentary trust is created after your death and the conditions governing the trust will be those set out in your will.
Living trust. Unlike a testamentary trust, a living trust is established during the grantor's lifetime. A grantor is the person who creates the living trust. When a living trust is created, the grantor transfers their ownership of the assets they want the trust to hold, to the living trust itself. This means that the grantor no longer owns the assets that have been transferred to the living trust. Once the transfer of assets has been completed, it is the trust that owns these assets.
What Is a Revocable Living Trust?
Most people who utilize a living trust as part of their estate planning create what's known as a revocable living trust. When a living trust is revocable, it means the grantor can, during their lifetime, change the terms of the trust whenever and however they want. This includes the right to revoke or terminate the trust completely.
While it's also possible to create an irrevocable living trust, these types of trusts are typically much more complicated, and are usually used by very wealthy people for purposes such as creating tax shelters for a portion of their wealth. Unlike a revocable trust, a grantor cannot change the terms of an irrevocable trust after its creation.
The Trust as a Legal Entity
When looking at the issue of whether a will supersedes a trust, one basic principle of trust law becomes very important. Once created, a trust becomes a separate legal entity in the eyes of the law.
Regardless of whether the trust is revocable or irrevocable, any assets transferred into the trust are no longer owned by the grantor. This principle provides direct guidance on the issue of whether a will supersedes the terms of a trust. After your death, your will sets out how you want your assets to be distributed. When your will goes into probate, the court gives the executor you've named in your will the power to distribute your assets the way you've stipulated in your will.
Your will can only set out how your executor should deal with the assets you owned at the time of your death. Because any trusts you have set up prior to your death are considered legal entities in their own right, the assets they hold are no longer considered your assets, and therefore your will cannot stipulate how they may be dealt with.
If your will sets out provisions that deal with assets held by an already established trust, those provisions will not be valid. In such cases, the terms of your trust will supersede the terms of your will, because your will can only affect the assets you owned at the time of your death.
For example, Carla sets up a living trust for her two children, Mark and Susan, and transfers her vacation home to this trust. The trust holds the vacation home as an asset throughout Carla's life, and she does not transfer the property back to herself at any point before her death. At her death, Mark and Susan discover that Carla's will provides for the vacation home to be given to Carla's sister, Paula. In such a situation, the trust supersedes the terms of Carla's will, and the vacation home must be dealt with according to the terms of the trust.
Avoiding Conflict Between Your Will and Your Trusts
As you can imagine, even though in the example above the law is clear that the trust supersedes the terms of Carla's will, clarifying the matter may give rise to costs, both monetary and in terms of convenience. It's therefore beneficial to all of your heirs to avoid having such conflicting provisions in your will and trusts.
If you wish to dispose of an asset in your will and you're uncertain whether a trust you've set up will conflict with your wishes, you need to check to see if your trust has ownership of that specific asset. If you find that it does, and the trust is a revocable one, the options you may pursue include changing the terms of the trust, or transferring the asset out of the trust back to you. And in the event of any continuing uncertainty on your part, it's always a good idea to consult with an attorney.
The purpose of a will is to deal with your property according to your wishes after your death. But sometimes there can be a conflict between the provisions of your will and those of a trust you created during your lifetime. In such cases, it's important to know that your will only affects the assets you own at the time of your death, and the terms of the trust will supersede your will when it comes to assets held by the trust.
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