What is a trust?

What is a trust? How do they work? Does a will supersede a trust or vise verse?

A trust and a will are two separate legal entities which normally work in conjunction with one another in an estate plan. However, they don’t always. So, it is important to know some ‘rules of thumb’ to avoid some basic, and unfortunately common, mistakes.

There are times a person decides to create and fund a trust or execute a part of their estate plan while they are still alive. For the purposes of this question, these would be considered ‘living trusts.’ Investopedia.com defines a living trust as:

“A living trust is a legal document, or trust, created during an individual’s lifetime where a designated person, the trustee, is given responsibility for managing that individual’s assets for the benefit of the eventual beneficiary. A living trust is designed to allow for the easy transfer of the trust creator or settlor’s assets while bypassing the often complex and expensive legal process of probate. Living trust agreements designate a trustee who holds legal possession of assets and property that flow into the trust.”

Once these transfers are made to a living trust, it is difficult to ‘take them back,’ extremely so after the donor dies. This is because the property held within the trust is now legally property of the trust, taking it outside of the donor’s estate.  Since a will only deals with the decedent’s estate, and a living trust is legally outside of the estate, a funded living trust will normally supersede a will when there is a conflict.

Conversely, a lot of wills, and estate plans, set up trusts which fund after the donor’s death. These are commonly called ‘testamentary trusts.’ Investopedia.com defines a testamentary trust as:

“A testamentary trust is a trust created under a will, which means the testamentary trust does not actually exist until the will takes effect. The will creates the trust and transfers property to the testamentary trust.”

Since this type of trust is a creation of a will, a testamentary trust is secondary to the terms of the will before and during probate. This type of trust does not exist BUT FOR the will. Once probate has occurred, the property or assets outlined in the will fund the testamentary trust. Of course, at this point, the will is now kind of obsolete.

The bottom line is: a living trust will typically supersede a will, assuming the donor funds the trust prior to their death. On the other hand, a will ordinarily will supersede a testamentary trust since the latter is a legal creation of the former.