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Wills and Trusts are both legal tools that give instructions on how to handle your possessions and property when you pass away. A Will, which is also known as a Last Will and Testament, allows you to dictate who receives your property after your death. On the other hand, a Trust usually takes effect as soon as it is created, and it designates a person or corporation to administer the trust property as instructed in the Trust. While these two legal instruments operate differently, sometimes both documents are used to create a comprehensive estate plan.
If you pass away without a Will or Trust in place, your estate is divided up according to the laws of intestate succession found in the Illinois Probate Act. For more information, please see our article on Probate.
You will recall the point above that a Will takes effect upon death. It is an instrument that identifies several roles that individuals will take upon your death. First, an Executor is named, who will carry out the instructions of the Will. Beneficiaries are also named; these individuals will receive assets in accordance with the directives found in the Will. Another important role is the appointment of a Guardian who will have responsibility to raise, guide and nurture your minor children. If you are leaving property to your minor children, you also have to determine who will manage that property on behalf of the children until they are of age. In these circumstances, a person known as a trustee or custodian has responsibility for managing assets left to support the minor children.
Property can be left to whomever or whatever you choose, including family members and organizations of any type, including charities. Some rules do apply to how much of your estate must be left to your spouse, so it is important to consult with an attorney to understand the rights of a surviving spouse and dependent children.
Certain assets are controlled by the form of ownership or have a death beneficiary feature. Examples include:
- Assets held in joint tenancy, meaning that it is owned by two or more people. This can include joint bank accounts, real estate, brokerage accounts, and personal property.
- Assets that directly name beneficiaries. These assets can include retirement plan assets, life insurance policy proceeds, annuities, and certain types of bank and investment accounts.
- Any property that is held in trust.
For a Will to be valid, a number of requirements must be met. First, you must be 18 years or older to create your Will. Next, you must be of sound mind and memory at the time it is created. Lastly, you and two witnesses must sign the physical document, and the two people who witness your Will cannot receive any part of your estate.
Unlike a Will, many estate planning Trusts becomes effective at the time it is created. A Trust can also be called a Living Trust or Revocable Trust. Just like a Will, the Trust gives people or organizations several roles to play. You, the creator of the Trust, is known as the Grantor (or “Settlor” sometimes). You also name a person or organization to serve in the important role of Trustee who administers the property within the Trust as dictated in the document. Finally, the beneficiaries are those who receive income or other distributions from the trust. To simplify these roles for a better understanding, a Trust designates a Trustee to manage property for the benefit of the beneficiaries.
Trusts offer a great amount of flexibility. If you want to remain in control of your assets, you can name yourself as the Trustee. You can also name co-Trustees or simply designate someone else as your Trustee. Similarly, you can name yourself as the sole beneficiary during your lifetime. You can also name others as beneficiaries, such as your spouse and children. In the event you are incapacitated, a successor trustee can be named and act when you cannot due to illness. Upon your death, the trust contains distribution instructions for your assets, like the instructions in a Will.
Trusts also have a few other advantages like the ability to avoid probate and the costs associated with it. Assets within the trust at the time of your death do not have to be managed through a probate court, because the trust is considered the owner of the property. The trust, through the trustee, will distribute your assets as instructed in the trust document.
Trusts can also provide for comprehensive disability planning. A successor trustee can be named, so that if you become incapacitated, a successor would be responsible for the management of the trust and using it for your benefit. Again, a trust could help you avoid probate court, including a guardianship, as the trustee serves to manage your assets.
Finally, the creation and amendments of a trust is usually a less complicated process than that for wills. Trusts do not require the formal witness process that wills require. Only the Grantor’s (or trust maker’s) signature is required to make the trust document valid.