Trusts vs Wills: What is the Difference?
Wills and Trusts are both tools used to transfer assets to individuals or organizations upon the death of the owner of those assets. However, that is where the similarities substantially end.
What is a Trust?
A Trust is an entity that is created by the requirements and rules stated in the Ohio Revised Code and specifically the Ohio Trust Code. Unlike a Will, a Trust is in operation after its creation during the lifetime of the creator.
The Code leaves many variations to Trusts and how they are created, meaning the type of Trust depends on the needs of the creator.
Revocable vs. Irrevocable
Most people seeking Trusts know the terms revocable or irrevocable.
Revocable: This means the Trust can be revoked or “cancelled.”
Irrevocable: This means the Trust cannot be cancelled. A Trust can be irrevocable from its inception, or a revocable Trust can be made irrevocable on the occurrence of certain criteria.
Note: Even an irrevocable Trust can be amended if the original provisions of the Trust allow for that.
The Benefits of a Trust
Trusts can be created to handle life insurance policies, protect the creator from their creditors, and control distributions over time. A Trust survives the death of the creator and continues to hold the assets of the deceased creator for the term of the Trust.
Crucially, a properly funded Trust will avoid the use of the Probate Court to transfer assets to the designated beneficiaries as intended and in the timeline established by the creator.
What is a Will?
A Will is a document created by the decedent when they are still living and competent to make the Will. It only goes into effect upon the death of the creator.
The Will only governs the distribution of the assets of the deceased that do not have beneficiaries or payable-on-death beneficiaries. If the deceased left assets that need to be transferred under the authority of the Probate Court, then the Will is submitted to the Court with an application for the administration of the estate.
Why Use a Will? (The Real Estate Example)
Sometimes there is a reason for an asset to be distributed according to the Will versus a beneficiary designation.
For example, consider a house that the decedent wants to go to all children equally. The decedent may not be sure that transferring the house to each child as a partial owner is a good idea, as it may create a problem with the liquidation of the house and the distribution of the assets.
If the house is governed by the Will: The Executor can sell the house and distribute the money to the beneficiaries without having to ensure that all beneficiaries are in agreement with issues like sale price.
The Court governs the estate to ensure that the Executor is being fair to the beneficiaries.
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