You just had a meeting with your estate planner, and are certain that an excellent estate plan was proposed. Something about a will, a trust (or was it two trusts?), and lots of discussion about who should be executor (was that the word?) of the trust, or the will, or both. Anyway, it all made perfect sense. There are going to be a few documents to sign, and they are all going to work together.
It is confusing. Why is there more than one document? Why do they name different people (or name the same person to two different positions?) The answers have to do with not only the historical basis of each document, but also with the development of the economic system and property law itself.
Those roots in long-ago history have morphed into the documents modern-day estate planners use to effect the desires of their clients, while dealing with the highly varied forms of property ownership they encounter, each unique family situation, and many possible legal and tax consequences.
In the past, most financial and real property of a personal nature was owned by one person (usually male), individually and outright. Historically, such property did not include instructions on “who gets it” if the owner dies. With realty, such instructions could, and often did, appear in a deed. But what about financial property? Or personal objects, such as jewelry? Without a will, such property goes to one’s “heirs”—that is, the persons designated by state law as beneficiaries. Since state law often did not reflect the decedent’s actual desires, the need for executing a will became very obvious. And in the will, one could also designate the person responsible for “executing” the instructions, called the executor (and now, in many states, including Massachusetts, called the “personal representative”). A will, to become valid upon death, must be ratified by a Court, or in other words, must be probated.
So why a trust? Trusts have a different, far more convoluted history, but suffice it to say, the law needed a device whereby a person who was not competent to own property (and in former days, that could mean simply a female) could have property owned for their benefit by a trustee who was prohibited from benefiting himself (it was always a him). That device, the trust, was invented centuries ago by British lawyers, but has proven remarkably durable and adaptable to the present day. Now, trusts can be completely amendable, the creator (and principal beneficiary) can serve as his/her own trustee while living (and a successor can come on if illness or incompetency strikes), and, like wills, they can have detailed instructions on what happens to the property after death—but without going to court. Those provisions, by the way, can be engineered to have beneficial tax effects. So they are a more modern and flexible way of planning the estate. The revocable trust is often called a “will substitute,” but as explained below, that’s not quite right. Almost all clients who have a trust will also have a will.
A trust can only control the property that is put into it. That can be a detailed process, which your lawyers and financial advisors can help with after the trust document is signed. Some types of property are retitled, some get there by beneficiary or “transfer on death” designations, some by deed, and others by assignment. And some types of property never get there at all, due to inadvertence or changes in the estate years after the documents are done. For that “missed” property, each client still must have a will to get it where it needs to go. But the residue of many wills these days goes to—you guessed it—the revocable trust. It’s a way of catching that missed property and, just like the lawyer said, makes sure your estate planning documents work together. Just remember, wills name executors or personal representatives, and trusts name trustees!