What Are Wills and Trusts?
Both a will and a trust are mechanisms by which you can pass your property to the persons of your choice after you die. A will is a written document that governs how and to whom your property should be distributed after you die. A trust, on the other hand, is a legal arrangement where one person, the trustee, manages property for the benefit of another person, the beneficiary.
What Happens if I Die Without a Will or Trust?
If you die without leaving a valid will or trust, you are said to have died intestate. When a person dies intestate, the state's inheritance laws govern how that person's property is distributed. In most states, your spouse and children would receive your property if you died intestate. If you have no spouse or children, your parents or siblings may inherit your property. If there is no one who is qualified to inherit your property under state law, then the state takes your property.
What Are the Benefits and Disadvantages of a Will?
The benefit of wills is that they are usually very flexible, according to attorney Dianne Reis. As long as your will meets the state's basic rules for making a valid will, the state will usually uphold your wishes as stated in the will, no matter what they are. The major disadvantage to a will is that it does not cover all of your assets. Joint bank accounts, jointly-owned property, insurance policies and some other assets have their own rules for passing to one person when another dies. These are known as "nonprobate" assets, because the probate court, which governs the execution of a will, has no power over these assets.
What Are the Benefits and Disadvantages of a Trust?
A trust allows you to pass some or all of your assets to your chosen beneficiaries without having to deal with the probate court. Because your assets pass to the trust's beneficiaries immediately upon your death, the probate court's intervention is not required. One disadvantage to trusts, however, is that they can be difficult to set up properly, and some of your property may have to be titled in the name of the trust in order for your beneficiaries to receive it when you die.
How Do a Will and Trust Work Together?
Using a trust in combination with a will is one way to avoid the disadvantage of having to probate the will and the disadvantage of having to title assets in the name of the trust. In these situations, the trust is created but is left "unfunded," or without holding any assets. The will, known as a "pour-over will," leaves all of your assets to the trust, which then distributes them to your beneficiaries.