Dad’s Will and Trust at Odds?

Dad’s Will and Trust at Odds?

A revocable trust, commonly called a living trust, is created during the lifetime of the grantor. This type of trust can be changed at any time, while the grantor is still alive. Because revocable trusts become operative before the will takes effect at death, the trust takes priority over the will, if there is any discrepancy between the two when it comes to assets titled in the name of the trust or that designate the trust as the beneficiary (e.g., life insurance).

A recent Investopedia article asks “What Happens When a Will and a Revocable Trust Conflict?” The article explains that a trust is a separate entity from an individual. When the grantor or creator of a revocable trust dies, the assets in the trust are not part of the decedent grantor’s probate process.

Probate is designed to distribute the deceased individual’s property pursuant to the instructions in his will. However, probate doesn’t apply to property held in a living trust, because those assets are not legally owned by the deceased person. They’re owned by the trust. As a result, the will has no authority over a trust’s assets.

Let’s say that Bernie (who is the grandfather) has two children named Pat and Junior.  Bernie places the old family home into a living trust that says Pat and Junior are to inherit that house. Twelve years later, Bernie remarries. Right before his death, he executes a new will that states the house is to go to his new wife, Andrea.

In order for Bernie to transfer the home to his new wife at his death, Bernie should have either (i) amended or restated his revocable trust during his lifetime to read that the house should be distributed to Andrea or (ii) transferred the home out of the trust to his individual name so that the will would control the distribution of the home as a then-probate asset.  Since Bernie did not amend his trust or transfer the home back into his name during his life, the home will be distributed to the two children, Pat and Junior.

Sound confusing? It can be. Work with an experienced estate planning attorney, so that your intentions can be carried out without any issues.   As mentioned, a revocable trust is a separate entity and doesn’t follow the terms of a person’s will when they die.

Make sure everything is legally binding and the way you intend it with the advice of a trust and estate planning attorney.   Estate planning is not a one-and-done task.  You need to revisit your estate plan periodically and ensure that your assets are aligned with your estate planning documents, whether it is a will or trust.

It’s important to note that while a revocable trust can supersede a will, the trust only controls those assets that have been placed into it or pay on death to it. Therefore, if a revocable trust is formed, but assets aren’t moved into it or appropriate beneficiary designations are not made, the trust provisions have no effect on those assets at the time of the grantor’s death.

Reference: Investopedia (Aug. 5, 2019) “What Happens When a Will and a Revocable Trust Conflict?”