In estate planning, trusts and wills may each have an important part to play. However, the terms contained in these documents sometimes give conflicting instructions regarding an individual’s wishes. When this problem arises, it begs the question of whether the terms of the will should supersede those of the trust. To understand how decisions are made regarding the distribution of assets after an individual’s death, you must first know how wills and trusts work.
What Does the Term “Trust” Mean?
Most people know the basics of how a will works, but you must also know what a trust is to understand which one overrides the other in conflicting circumstances. When individuals use a trust in estate planning, they do so with either a living trust or a testamentary trust, which are described in the following way.
- Living trust. A living trust is one that a person, known as a grantor, establishes during their lifetime. This type of trust is one in which the grantor gives up ownership of the assets that they place in the trust. They transfer ownership of such assets to the living trust. Once this arrangement is completed, the trust holds the assets the individual has named, and the grantor no longer owns them.
- Testamentary trust. This type of trust is one that goes into effect after an individual’s death, as it is created by certain provisions set forth in their will. Since the testamentary trust isn’t created until after the person dies, they own their assets until their death, and then the assets are then subject to the conditions set up in the will.
Trusts Are a Popular Option in Estate Planning
Some individuals opt to use a revocable living trust, which allows for a bit of flexibility during the grantor’s lifetime. The use of a revocable living trust in estate planning gives the grantor the ability to change the terms of the trust however and whenever they want throughout their life. By making these arrangements, the grantor also retains the right to completely terminate or revoke the trust if they choose to do so.
There is also an irrevocable living trust that some individuals use in their estate planning, but it doesn’t offer the same flexibility as the revocable living trust. Such trusts are typically used by ultra-wealthy individuals and can be much more complicated than others. The purpose of these trusts is often to create a tax shelter for a portion of the person’s wealth. If assets are placed into an irrevocable living trust, the grantor cannot change the terms of the trust after it is created.
An Important Factor to Consider
In the decision of whether a will should override a trust or not, there is a vital principle of trust law that cannot be ignored. In legal terms, creating a trust means that the trust itself becomes a separate legal entity. This is a result of the fact that the grantor no longer owns the assets transferred into a trust, regardless of whether it is revocable or irrevocable.
Resolving issues of conflict between wills and trusts is guided directly by this principle. The reason for this is that once an individual passes away, their will dictates exactly how they want their assets to be distributed. The will goes into probate, which means the courts give the executor of the will the right to disperse those assets the way the deceased individual has stipulated. The will, however, only applies to assets the person actually owned at the time of their death.
If the individual has set up any trusts prior to their death, those trusts are separate legal entities. The assets held in these trusts are no longer owned by the grantor; therefore, any mention of those assets in the will is irrelevant, as they are owned by the trust.
There are occasions on which provisions in a will name assets that are held by a trust, but in these situations, the validity of the trust overrides that of the will. This often creates conflict between heirs, as those who are named in the will believe that the will should be executed and should inherit certain assets. What they fail to realize, however, is that once those assets are placed in a trust, the grantor can no longer leave them to anyone in the will, but they must be handled according to the terms of the trust.
How to Avoid Issues Between Your Trust and Your Will
It is important to remember that your heirs will be burdened with legal costs and a terrible inconvenience in a time of mourning if there are discrepancies between your trust and your will. To best protect your loved ones from facing these issues, you must take measures to ensure that there are no conflicts.
If you would like to leave something to an individual in your will and you aren’t sure whether your wishes will be affected by a trust that you have set up, it is essential to check and see if that particular asset is owned by your trust. If you realize that you have placed that asset in trust, you may be able to change the terms of your trust and take ownership of the asset again if your trust is revocable. Whenever you have unresolved questions regarding assets held in your trust, it is best to consult your estate planning lawyer for advice.
Trust the Professionals for Your Estate Planning Needs
As you already know, the purpose of your will is to ensure that the property you want to be given to certain heirs upon your death is handled according to your wishes. Always keep in mind, however, that assets you place in your trust may not be distributed according to your will since you are giving up ownership of them.
The details of estate planning can be complicated and overwhelming, even for individuals who don’t have a large estate. For this reason, it is vital to turn to legal experts who have the knowledge and experience to ensure that your wishes are carried out properly. The attorneys at Huber Fox Trust and Estate Law have a reputation for excellence in our field and take the time to understand our clients’ needs and wishes. Visit our website today to find out how we can help to give you peace of mind.