By Corrina Judd, Esq., Assistant Vice President & Estate Officer
Completing an estate plan is an indispensable step to take in preparing for the future. A basic knowledge of key estate planning documents can make the estate planning process easier to navigate. Wills and trusts are two common estate planning documents, and although they can accomplish similar purposes, their differences are important to understand.
What Is a Last Will and Testament?
A last will and testament is foundational in any estate plan. At its most basic, a will is like a letter to a judge. The will tells the judge how the creator of the will (the “Testator” or “Testatrix”) would like his or her property to be disposed of at death. Since the Testator or Testatrix cannot see that the will is enforced once he or she passes away, the judge ensures that the terms of the will are carried out faithfully. The process by which the will is submitted to the judge for validation and oversight is known as “probate."
Wills control the disposition of what are known as “probate assets” at death. Probate assets are those that are titled in the Testator’s or Testatrix’s sole individual name and that do not have a beneficiary designation. In addition to disposing of his or her assets, the Testator or Testatrix can name a guardian for his or her minor children in the will. The will also designates someone whose role is to execute the terms of the will - i.e., the Executor (also frequently referred to as the “Personal Representative”). The Executor may be a trusted individual or corporate fiduciary, like The National Bank of Indianapolis.
What Is a Trust?
A trust is like a rule book. The creator of the trust (the “Grantor” or “Settlor”) maps out parameters in a trust agreement for how trust property is to be used and managed. The Grantor appoints a “Trustee” in the agreement, whose job is to administer the trust according to the rules set forth in the agreement. Like an Executor of a will, a Trustee may be an individual or a corporate fiduciary like The National Bank of Indianapolis. The Grantor then names people or organizations (known as “beneficiaries”) whom he or she would like to benefit with trust assets. Trust assets may be distributed to or for a beneficiary during the Grantor’s lifetime, after the Grantor passes away, or both.
A trust agreement only governs those assets that are held within the trust, which means assets must be transferred from the Grantor’s individual name into the name of the trust for the trust to take effect. So what happens if a Grantor created a trust during his or her lifetime but failed to fund the trust properly before passing away? Most estate plans involving a trust will also include what’s known as a “pour-over” will. The beneficiary named in the pour-over will is the trust, which ensures that any probate assets that were not funded into the trust are posthumously “poured over” into the trust. The result is that all the assets pass in accordance with the trust’s terms.
Trusts can be beneficial for several reasons. First, assets passing at death through a trust are not subject to probate; as a result, trust documents are not accessible through public records the same way probated wills are. If privacy is a priority, a trust can therefore be a sound alternative to a standalone will. Second, trusts are useful when the Grantor wishes to financially assist a beneficiary but doesn’t want the beneficiary to have unrestricted access to funds. If a beneficiary is a young child, for example, or has a development disability, substance abuse issues, a long list of creditors, or finds it difficult to manage his or her finances responsibly, a trust can serve to provide for the beneficiary’s needs without the beneficiary having unfettered access to trust assets.
Wills and trusts are valuable tools in preparing for the future. The options for drafting wills and trusts can be complex, which is why it is crucial to consult with an experienced estate planning attorney to address your circumstances and goals. The Wealth Management team of The National Bank of Indianapolis provides highly personalized services in the areas of estate settlement and personal trust administration. Contact us to discuss how we can partner with you and your trusted advisors in providing these services for you and your loved ones.