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Do You Have a Will or a Trust? Why?

With over 75 million of us over fifty years of age, more people are starting to get very interested in planning their estate. The initial decision to be made in most cases is whether to center your plan with a Last Will and Testament or with a Living Trust. According to the AARP, of the people who do estate planning these days there is an almost even division between wills and trusts. In the past the will was heavily favored. What has changed?

In generations past families were very close, there were few estates that had any tax liability, and children respected their parents' wishes, both before and after the parents passed away. We live in a different time. Estate litigation is no longer rare. In order for your wishes to be carried out, they have to be in writing, and that writing will govern what actually gets done when you cannot speak for yourself.

The difference between a will and a trust, according to Black's Law Dictionary, "is that a will operates from the moment of death, while a trust operates in the present." A will is a perfectly good way to pass your assets at death, but it cannot provide any help if you become incapacitated during your lifetime. A trust, on the other hand, is in effect from the moment it is properly set up and funded, providing protection and assurance that your wishes will be carried out, both during any period of disability as well as at your death. A will must go through the court proceeding known as probate to become a legally effective instrument to carry out your wishes, while a trust functions without the need for a court procedure, both in the event of disability as well as at death. Many people have signified their approval of the "extra" protection with a trust and its avoidance of court involvement by choosing the trust as their preferred mode of estate planning.

If a will is selected as the cornerstone of your estate plan, then you will need to have made an additional provision for someone to take over management of your assets in the event of your incapacity during life. As mentioned above, the will only comes into effect after your death. Many people have utilized a durable power of attorney for this purpose. However, in recent years many of those persons have run into businesses that decline to honor a power of attorney. No one is required to honor a power of attorney by law in Mississippi. So what do you do in that case?

Some people put their children's names on their assets with authority to deal with them in the case of the parent's disability. Sounds good, but this will often result in the assets being exposed to the creditors of the child, or to their bankruptcy, or even to being considered as an asset to be divided in their divorce, since the child is now a co-owner of the assets. Of course, making a child a co-owner of real property will not give authority to that child to deal with it, but will make his or her interest subject to the claims of his or her creditors (including soon-to-be ex-spouses). The same problems can arise when using lifetime gifting to avoid probate or to bring down the size of the taxable estate. It can be done with relative safety with a very special type of protective trust for the child, but not with an outright gift.

Don't want your assets to wind up in the hands of your former son-in-law (or daughter-in-law) and the new spouse? Do your estate planning with the centerpiece being a living trust. Particularly in the situation of a blended family (children from a prior marriage), you can make sure that your children do not get "accidentally disinherited", but that your spouse has the benefits of your estate during his or her lifetime and that your children then can receive their entire inheritance. Not complicated, but it must be done correctly.

Some people in their planning have chosen to have elaborate trust structures included within their wills. Nothing wrong with that, as long as they realize that for these type trusts (called "testamentary trusts" as opposed to "living trusts") to come into existence the will must first go through the probate process. Another variation is to have a "dry" living trust (meaning it holds no assets) established which only gets funded from the proceeds of the probate estate with a will. Kind of defeats the goal that many people have of avoiding probate through the use of a living trust. Make sure you understand your plan completely and that it will accomplish your objectives. Some do; some don't. Make sure your does. After all, you are paying for it.