Trusts vs. Wills in Massachusetts
Trusts
What Can Trusts Be Used For?
Trusts can be used to control and manage a person’s assets both during life and after death. Trusts can be used for a variety of purposes, including:
Managing Distribution of Assets: Unlike wills, trusts can be set up to manage assets over time. The creator of the trust makes rules about how and when assets are distributed to beneficiaries. Distributions to beneficiaries can be spaced out over time or restricted to certain uses, like education.
Estate Tax Planning: Trusts can be used to reduce or eliminate estate taxes. Trusts can be set up to structure the distribution of assets between spouses at death to maximize the use of available Massachusetts and federal estate tax exemptions.
Special Needs Planning: Trusts can be used to hold assets for the benefit of disabled individuals while maintaining their eligibility for government assistance programs. Trusts can also be used to manage assets on behalf of individuals with substance abuse issues, or beneficiaries who may be subject to financial abuse.
Avoiding Probate: Trusts can be used to avoid probate court. In Massachusetts, assets held in a trust are not automatically subject to the probate process after death. This means trust-owned assets are typically available to beneficiaries much sooner than probate assets, and often at significantly lower administrative costs.
When Does a Trust Become Valid?
A trust essentially becomes valid immediately when signed by the creator (a.k.a. the Grantor, Settlor, or Trustor).
The grantor must also fund the trust by transferring assets to the trustees to be used for the benefit of the trust beneficiaries.
Trusts do not typically require prior court approval before they become valid.
What Assets are Controlled by a Trust?
A trust can only control assets that are owned by the trust and that have been legally transferred to the trustees, which does not happen automatically. The grantor must select and transfer individual assets to the trust. The transfer process differs depending on the type of asset being transferred:
To transfer a financial account to a trust, the grantor must update the ownership documents associated with the account to list the trust or the trustee as the new legal owner.
To transfer real estate into a trust, the grantor must sign and record a new deed & trustee’s certificate on public record that transfers the real estate into the trust.
Who Oversees Distribution of Assets Owned in a Trust?
The Trustee oversees distribution of trust assets but does so subject to the terms of the trust – the grantor (creator of the trust) typically sets out rules for the trustee to follow in making distributions.
Sometimes the grantor retains the power to remove and appoint new trustees and sometimes gives the beneficiaries the power to do so. However, all trusts are different, and the rights and responsibilities of the trustees and beneficiaries are determined by the specific terms of the trust.
What Happens if You Die Without a Trust or Fail to Fund a Trust?
If you die without a trust, or if you fail to properly fund your trust, your assets will pass according to any completed beneficiary designation forms and/or under the terms of your last will & testament, if you have one.
Wills
What Can a Last Will & Testament Be Used For?
In Massachusetts, a person’s last will and testament can be used to: (1) determine the distribution of assets after death, (2) nominate a guardian for any minor or disabled children, and (3) leave burial instructions and other last wishes.
When Does a Will Become Valid?
In Massachusetts, a person’s last will and testament takes effect only after death.
A last will and testament has no legal effect on a person’s property while they are alive.
Even after death, person’s last will and testament does not automatically become valid. In Massachusetts, a will must be submitted to and approved by the probate court before it becomes enforceable. The process of getting the will approved is known as probate.
What Assets Are Controlled by a Will?
In Massachusetts, only assets owned or titled directly in the individual name of the deceased person are subject to probate – as opposed to assets owned in trust, or assets subject to predetermined beneficiary designations discussed below.
Any assets or accounts of a deceased person that have valid designated beneficiaries (a.k.a. transfer-on-death or payable-on-death accounts) are excluded from probate and pass subject to the completed beneficiary form associated with the account. Assets such as life insurance, 401(k)s, and IRAs often have beneficiary forms that would override the terms of a will if the form was completed by the account owner during life.
Any accounts for which an owner fails to designate a beneficiary on the required form, or if a designated beneficiary has predeceased the account owner, then probate may be necessary to determine the rightful heir to the account.
Who Oversees Distribution of Assets under A Will?
In Massachusetts, it is the legal responsibility of the Personal Representative to consolidate and distribute a deceased person’s property, either according to the terms of a valid last will and testament, or according to the laws of intestacy when someone dies without a will.
·The duties of a Personal Representative are typically of limited duration and do not extend beyond the time that final distributions are made to beneficiaries according to the will.
What Happens if You Die without a Will?
If you die without a will in Massachusetts, a set of laws called intestacy laws are used to determine how your assets are distributed. These laws also determine who may be appointed as Personal Representative (Executor) of your probate estate.
Massachusetts intestacy laws give priority to blood relatives but these default rules may not align with a deceased person’s wishers.
If you die without a will, you are said to have died intestate.
How Do You Nominate a Guardian for Minor or Disabled Children after Death?
In Massachusetts, a last will and testament can be used to nominate a guardian for a deceased person’s minor or disabled children. This cannot be accomplished through a trust.
