The Difference Between a Will and a Trust in Michigan
“Will” and “trust” are common estate-planning terms, and many Michigan estate plans include both, but they serve different purposes.
What Is a Will?
A will is a legal document that takes effect at death. It can direct the distribution of assets that pass through your probate estate, nominate a personal representative to administer the estate, and nominate a guardian for minor children.
What Is a Trust?
A trust is a legal arrangement in which a trustee holds and manages assets for the benefit of one or more beneficiaries. A properly funded trust can help assets pass to beneficiaries without probate court administration. However, the trust must actually own the relevant assets or be properly named as a beneficiary where appropriate. A trust may also help to keep personal family matters outside the public court record. Learn more about different types of trusts in our blog here.
Why a Will Alone May Not Be Enough
A properly drafted and executed will is an important part of an estate plan. For some individuals and families, it may be sufficient. However, a will alone will likely not address every estate-planning goal and some of the following issues may arise:
Probate administration: Assets held solely in a deceased person’s individual name, without a beneficiary designation or other probate-avoidance arrangement, will likely need to pass through probate. Probate can be a lengthy and confusing process involving court filings, notices, deadlines, inventories, creditor claims, and administrative work. All of the things involved in this process must occur before assets can be distributed.
Expense and administration: Probate administration may involve court costs, legal fees, accounting or appraisal costs, and other administrative expenses that can be unexpected for beneficiaries. Although a trust also has administration costs, a well-designed trust may reduce the need for formal court involvement and likewise reduce the expenses associated with ongoing formal court proceedings.
Beneficiary designations can override a will: A will is not always the final word on where assets go. Retirement accounts, life-insurance policies, transfer-on-death registrations, and payable-on-death accounts generally pass according to their beneficiary designations. An outdated designation can conflict with a will and lead to unintended distributions.
Incomplete planning for changing circumstances: A will can be updated and may include contingency provisions. However, a trust may offer greater flexibility and continuity in controlling how and when distributions are made, as well as providing contingency plans for specific assets. If a will does not effectively dispose of all probate assets, Michigan intestacy law may determine who receives the remaining property, resulting in distribution that may not reflect the decedent’s wishes
What Can a Trust Do?
Depending on the type of trust and its terms, a trust may help:
Avoid probate for assets properly titled in the trust’s name.
Provide for the management of trust assets if the creator becomes incapacitated.
Keep distribution details more private than a probate-court proceeding.
Control the timing and conditions of distributions to beneficiaries.
Provide for minor children or beneficiaries who may not be ready to receive a large inheritance outright.
Hold and manage assets that are difficult to divide, such as a vacation home, business interest, commercial real estate, mineral interests, timberland, a vehicle collection, or a pet-care fund.
Support business-succession planning and the orderly management of business assets.
Provide potential creditor protection for beneficiaries.
Address tax-planning goals when appropriate.
Do You Need Both?
Estate planning is not one-size-fits-all. The appropriate plan depends on the nature of your assets, whether you own a business or real estate, your family circumstances, your privacy concerns, your beneficiaries’ needs, and your wishes in the event of incapacity or death.
Conclusion
Jabbour Law can help you prepare or update a will, trust, and other estate-planning documents tailored to your goals. This article is for informational purposes only and does not constitute legal advice. Each person’s situation is unique, and you should consult an attorney for advice specific to your circumstances.
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