Understanding the Interaction Between a Will and an Irrevocable Trust

When it comes to estate planning, understanding the relationship between a will and an irrevocable trust is crucial. In general, a will does not override an irrevocable trust, given the unique features of these legal documents. This article will explore the key points to understand, the differences between a will and an irrevocable trust, and the potential implications for your estate.

Key Points to Understand

Irrevocable Trust: Once established, an irrevocable trust cannot be modified or revoked by the grantor. The assets placed in the trust are considered owned by the trust, not by the individual. This often means that such assets are not subject to probate and do not pass through a will.

Will: A will governs the distribution of assets not placed in a trust at the time of an individual's death. It only applies to assets that are part of the probate estate, such as bank accounts and property not listed in a trust.

How Do They Interact?

Assets in the Irrevocable Trust: If you have an irrevocable trust, the assets in that trust will generally be distributed according to the terms of the trust, not the will. However, any assets not included in the trust and owned individually by the grantor would be distributed according to the will.

Beneficiary Designations: If a trust was named as a beneficiary of certain assets like life insurance or retirement accounts, those assets would go directly to the trust and not be affected by the will.

Specific Considerations

Types of Irrevocable Trusts: There are two main types: irrevocable living trusts and irrevocable testamentary trusts. In the former, you create and fund the trust in your lifetime, while in the latter, the trust is not funded until your death.

Type of Trust Description Irrevocable Living Trust Create and fund the trust during your lifetime, providing asset protection and avoiding probate. Irrevocable Testamentary Trust Set up in a will and funded with assets only after the grantor's death, offering flexibility in distribution after your passing.

Examples of irrevocable living trusts include life insurance trusts, spousal lifetime access trusts, and charitable remainder trusts. Examples of irrevocable testamentary trusts include those set up in a will and funded with estate assets.

Pros and Cons of Irrevocable Trusts

Pros: Moving assets into an irrevocable trust can help avoid estate taxes, allowing for the management of a large estate. You can also dictate conditions for asset distribution, thereby avoiding mishandling. Additionally, a trust provides protection from legal claims related to professional liability.

Cons: Once assets are moved into an irrevocable trust, you lose control over them. Changes and distributions must be approved by beneficiaries. If you suddenly face financial hardship, you are unable to change the income distribution arranged in the trust. Lastly, if your priorities, goals, or finances change, you cannot amend the trust.

Key Considerations for Estate Planning

It is essential to consult with an estate planning attorney to understand how your specific trust and will interact, especially if you have substantial assets or complex family situations. Proper estate planning involves not just a will but also an irrevocable trust. The next step in modern estate planning is to store your will online. This ensures that your will can be accessed and acted upon promptly in case of your passing. ‘A Will that is not online is like a Will that does not exist’.

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*Disclaimer: The above information is general in nature and may not apply to all legal situations. It is advisable to consult with a legal professional for personalized advice.