Family trusts and wills are two tools commonly used in estate planning. However, a family trust is typically meant to operate during life, while a will doesn't take effect until death. Each estate planning tool has several advantages and disadvantages; those with specific questions should direct them to an estate planning professional.
A will is a legal instrument, created by a person, known as the "testator," in anticipation of his own death, which describes what he wants done with his property. Wills may dispose of all of an estate, or only part, in which case the remainder may go to descendants via laws of inheritance. Wills must be created and legally executed during life, but they don't take effect until the moment of death. The typical will names an individual, known as an executor, who takes over after the testator's death and oversees payment of debts and distribution of assets.
Wills have certain disadvantages. The formalities required to execute a will may be difficult to satisfy. States set their own requirements for executing wills, but typically, a will must be in writing and signed by the testator, and the signing must be witnessed by two (or sometimes three) people who have no expectation of gaining anything from the will. However, some states do allow a form of will, known as a holographic will, which mitigates these requirements. Most estates settled via will must go through probate, a legal process designed to determine the validity of a will and oversee settlement of an estate. Many states offer simplified probate for less complex estates, but probate can be a long and troublesome process.
A family trust, also known as a revocable living trust, transfers a person's assets away during his lifetime. The owner of the assets, known as the "settlor," transfers them to a trustee, who becomes responsible for managing the assets. However, although the trustee is the legal owner, he has no right to enjoy the assets himself. The trust names one or more beneficiaries; and the trustee has a fiduciary duty to take care of the assets for these beneficiaries. Once the settlor dies, the revocable trust becomes irrevocable, and continues to operate until its stated purpose is fulfilled.
Family Trust Considerations
Creation of a revocable trust requires certain formalities, similar to those required for creation of a will, but typically a revocable trust won't require independent witnesses. Trusts have the major advantage of avoiding the probate process, but they also take away the settlor's power to control his assets. If a settlor retains any legal control of the assets, a court may be justified in finding the trust invalid. So, the settlor must be prepared to sacrifice all use and profit from those assets for his lifetime.