WILLS AND TRUSTS

A will is simply a document in which people put in writing their desires for the disposition of their property following death. Wills can be simple and straightforward or comparatively complicated depending on the extent and types of property involved, to whom the property will go and whether the property will be transferred outright or in trust. The most important thing to understand about wills is that they only control what are known as "probate assets" -- that is, property titled only in the name of the deceased, made payable to the estate or held as tenants in common. Such property must go through the probate process. In contrast, property titled in joint tenancy with rights of survivorship or property with beneficiary designations are not controlled by wills. No matter what a will states, such property must pass to surviving joint tenants and named beneficiaries.

A trust is a legal document by which people transfer ownership of property to hold and manage -- for their benefit during their lifetimes and the benefit of their heirs following death. In many respects, a trust combines the provisions of a financial power of attorney enabling others to make financial decisions with the provisions of a will controlling the disposition of property.

The main advantage is that property placed in trust can be transferred quickly to beneficiaries following death without going through the probate process; however such a transfer does not remove those assets for the purposes of estate taxes. Nor do trusts offer substantial advantages in reducing income taxes.

The people who create and transfer property into a trust are called settlors. The people, entities or institutions that manage trusts are called trustees. Those who benefit from the trust are called beneficiaries. In some cases people can be settlors, trustees and beneficiaries all at the same time.

There are several types of trusts that are often used in combination with one another. A living trust is established during the settlor’s lifetime and becomes effective upon its creation. A testamentary trust is established by a will and becomes effective upon the settlor’s death. A revocable trust allows settlors the ability to change or terminate the trust, while an irrevocable trust usually can’t be changed or terminated by the settlors.