Just How Bad Is It If My Will & Trust Don't Match?
Wills are an essential part of estate planning, leaving instructions for how to distribute your assets and possessions after you die. Trusts are a common tool in estate planning as well, serving as a way to manage assets both before and after your death. If your will conflicts with a trust that you have set up, the trust will typically prevail. This is because, in most cases, the assets in a trust don’t technically belong to your estate any longer. They are legally owned by the trust itself, so the terms of your will don’t affect them. For help with estate planning, consider working with a financial advisor.
Will Definition
A last will and testament is a legal document that directs how to distribute your assets after your death. Among other issues, a will establishes:
Who will take possession of your cash, investments, belongings and other property
How to pay any remaining debts or obligations
Any long term or ongoing plans that you would like to make
The care and distribution of any real estate you own
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Wills are an essential part of estate planning. When you die, everything that you own is collectively known as your estate, which then gets distributed among your heirs.
If you leave a will, your estate is distributed according to your wishes and that process is overseen by someone you select, known as the executor. If you die without a will, known as dying intestate, your estate is distributed according to the inheritance law of your jurisdiction. That process is overseen by someone appointed by the probate court, known as an administrator.
Under typical circumstances a will is managed through and by probate courts. Your executor will file your will with the court which in turn oversees the entire process of settling your affairs and distributing the estate’s assets. For most estates, the probate process is largely a formality. The court makes sure that your will is legal, that your estate pays its debts and that your executor has the access they need to distribute your assets.
The same process occurs if you die without a will. In that case, the probate court appoints an administrator and the court then ensures that the administrator distributes your assets according to the local inheritance laws.
Trust Definition
A trust is a legal entity created to hold, manage and oversee property. Every trust has four main components:
Contributor – The person who created the trust and contributed assets to it
Assets – The cash, property and other assets owned by the trust
Trustee – The individual or firm that manages the trust’s assets
Beneficiary – The person or persons who receive assets from the trust
When you create a trust, you put assets in its name. Once you do that the assets belong to the trust itself, not you. This is the same as with any other property transfer. The trust is a legal entity capable of owning assets, paying taxes and making distributions, so once you put something in its name that property legally belongs to the trust itself, not you.
In creating a trust, you also establish its terms. You name the trustees and the beneficiaries, and set out the terms for how the trustees should manage the trust and its assets. This includes instructions for what assets the beneficiaries will receive, along with how and when. For instance, you can leave instructions for your trustee to distribute your funds equally among your children after you die.
Can a Will Override a Trust?
There are two main circumstances in which a will can conflict with a trust. First, a will might give instructions that conflict with the terms of a trust that already exists. For example, your will might include language that leaves the family home to your children, while earlier in life you placed that house in a trust for tax purposes. Second, a will might give instructions that conflict with the terms of a trust that doesn’t exist yet, or which hasn’t yet received its assets. For example, your will might include language that distributes your investments among your children, while another section of the will might include language that places your investments in a family trust.
In the first case, the terms of the will have no authority. A will cannot override a trust that already exists, nor can it distribute or manage property already held in an existing trust. If a trust exists and holds its assets, those assets belong to the trust itself. They are not part of your estate and, as a result, are not subject to the terms of your will.
If your will gives instructions that conflict with the terms of a trust, your will’s terms will apply to the assets in your estate and the trust’s instructions will apply to the assets in the trust. The designated beneficiaries will receive their assets according to the terms of the trust.
In the second case, your will is not actually conflicting with any existing trust. Instead, it is internally contradictory and will be resolved according to local inheritance law. You can leave instructions in your will to put assets in trust. This can apply to a trust that already exists, where your will puts assets into a trust that you created earlier. It can also apply to a testamentary trust, where your will instructs the executor to create a new trust and put assets into it.
In both cases, these assets belong to your estate when you die. This means that the terms of your will govern how those assets are distributed. If one section of your will conflicts with the section of your will which creates or contributes to the trust, then the issue is that your will is internally contradictory. The trust itself is not in question, just the will.
In that case the probate court and your executor will have to determine the exact nature of the internal conflict in your will. They will then resolve that conflict according to state and local inheritance law.
Your will still cannot supersede how an existing trust manages its assets. But conflicts in your will can prevent new assets from being added to the trust. This is why, if you plan on making or managing a trust, it’s wise to have a lawyer help you write these documents.
When Should You Use a Will vs. a Trust?
Wills and trusts are, generally, the two most significant vehicles for estate planning. Broadly speaking, if you are looking to leave assets to your heirs, you will likely use one or both of these. While a full exploration of the subject is beyond the scope of this article, there are some good rules for when you should use a will vs. a trust. Wills and trusts are not mutually exclusive; their control over specific property is. Any given asset can either be put in trust or distributed by a will – but not both. However, you can manage your estate in general by putting some assets into a trust and distributing others through a will.
Wills – Good for mid-sized estates, simple transfers and instructions
In general, wills have the benefit of simplicity.
While wills do not have the tax and probate benefits of a trust, the truth is that these concerns are frequently overstated. The federal estate tax only applies to large estates, beginning at $12.92 million at time of writing. And the probate process can take some time, but it typically is only lengthy and complex for particularly large or contentious estates. If you have an ordinary scope of assets, the odds are good that neither taxes nor probate will be a burden for your heirs.
Yet, at the same time, wills are one-shot instruments. This makes good for making simple distributions and leaving direct instructions. But once the terms of the will have been carried out, the estate is closed.
The result is that wills are often a good choice when you want to leave someone an asset in its entirety, such as leaving an amount of cash or a home to one single heir. They are also good for small and mid-sized estates, as a trust would impose additional costs and complications in order to solve tax and probate issues that these estates likely will not have. Finally, wills are good for leaving instructions beyond the scope of assets, such as arranging for the care of minor children and pets.
Trusts – Good for larger estates, ongoing wishes and contestation
In general, trusts have the benefit of third-party management.
When you put money into a trust you legally hand it over to a third party. This creates costs and complications that a will does not have. The trust will require instructions and terms, and you will need to pay for a trustee to oversee the trust’s assets.
This same process, however, means that your estate moves out of your name. You can do this before death, through a living trust, after death, through a testamentary trust, or in totality, through what is known as a pour-over will. This last is a will which bequeaths all of your property to a trust, so there is no risk of accidentally leaving any assets to the probate process.
Moving assets out of your name makes trusts good for estates that are large enough to trigger tax and probate concerns, such as if your estate is worth more than $13 million at time of writing. They are also good for people who want to leave ongoing instructions after they die, for example, if you would like to ensure that a piece of property remains in the family without being sold. Finally, trusts are good for people who anticipate contested issues, as the trust will avoid the probate process that opens the door for heirs and debtors to challenge the estate.
When you’re trying to decide whether to leave assets in a will or a trust, a good rule of thumb is this:
Wills are a good choice when you have a simple transfer to make. If you want to leave someone money or property to own outright, and you are not a multimillionaire, a will may be your best option. Trusts are a good choice when you have a large or complex issue of inheritance. If your estate is worth several million dollars, or you want to ensure that your assets are transferred and managed in a specific way, a trust may be your best option.
Bottom Line
A will cannot override the terms of an existing trust. Once assets belong to a trust, they are not part of your estate and your will has no authority over them. However, if your will has terms to put assets into a trust, internal contradictions can prevent that transfer from taking place.
Estate Planning Tips
Depending on your estate and your wishes, writing your will can be a complicated process. Make sure you take the time to educate yourself about the intricacies of the process before you get started.
A financial advisor can help you with estate planning. Finding a financial advisor doesn’t need to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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