by Tom Klein

Created on: December 01, 2008   Last Updated: March 01, 2012

Overview

Wills and trusts are two essential legal documents highly recommended for an estate plan, even if one has very few assets to transfer to his or her heirs. The will and the trust serve the same purpose passing assets to heirs on death but do so through different means. Furthermore, the two documents work together to form the foundation for any asset transfers on death. The trust can also be used to transfer assets during a person's lifetime.

Wills and Trusts Vocabulary

Estate planning attorneys use the following terms when working with wills and trusts:

Testator the person making the will, also called the Decedent at his or her death;
Trustor or Settlor the person making the trust;
Transfer this is an asset transfer: if it occurs at death it is called a Testamentary Transfer, and if it occurs during the life of the Testator, then it is called an Inter-Vivos Transfer.

Understanding Wills

A will is a set of instructions for the transfer of the testator's property at his or her death. In order to make the actual property transfers, the will must be entered in court, an executor appointed (usually the executor is specified in the will), and then the court will issue an order authorizing the executor to make the transfers specified in the will. This court process is called "probating" the will or entering the will in the probate court. Although a will is an essential estate planning document, the will is often thought of as the safety net to catch all of the assets that were not specifically transferred in some other way during the life of the testator either through gifts or through a trust.

Understanding Trusts

Trusts allow for the transfer of property without the need for probate, and are thus a good instrument to use for the transfer of assets to heirs. There are different types of trusts for estate planning, but the workhorse is the revocable trust. This trust can be revoked at any time before the settlor's death. After his or her death, the trust becomes irrevocable.

A settlor establishes a trust by signing a trust agreement or declaration of trust, appointing managers of the trust assets the trustees and then transferring assets into the trust. Trusts are considered separate legal entities from the settlor, and thus once a trust is formed and funded with assets, the trust is considered the legal owner of the assets. Accordingly, when the settlor dies, his or her death has no effect on the assets in the trust because the trust continues in existence

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