Q: Why does a will need to be filed or recorded, but not a trust?
A: I love this question because it touches on a couple of different estate planning concepts. It also demonstrates why trusts are sometimes preferable to traditional wills.
A real simple way of looking at it is this: when you leave a will, you have left a set of instructions that, among other things, determines how your property should be distributed following your death. However, in order for your property to be distributed, someone has to have the authority to transfer it. That authority is granted by a court of law after the will has been filed. The process of presenting the will is essentially the start of the probate process.
A trust, on the other hand, is an entity that is created when a settlor and a trustee (often times the same person) enter into a trust agreement. You can’t see or touch the trust, but it is a legally recognizable entity. A trust, like a will, can also contain testamentary distribution instructions. However, unlike a will, a court doesn’t have to grant the authority to carry out the settlor’s final instructions. Because the trust survives the settlor and the trustee is granted the authority in the agreement and under Indiana law, no court involvement is required. Trusts are rarely filed with court because they don’t have to be.
Like I said; this is a really simplistic explanation and the probate process has a lot of working parts that need to click at the same time. However, that is an easy way to look at it. A will needs to be filed to become effective. A trust does not.
Now, having said that, remember that some estates don’t require the will to be filed at all. If you have an estate whose probateable assets are $50,000 or less, the assets can be transferred using an informal probate process using what is affectionately referred to as a small estate affidavit. The small estate affidavit can be utilized whether the will is filed or not. Personally, I still like to see the will filed even if it isn’t required for probate because filing the will, known as spreading the will, preserves it. Wills can only be admitted to probate if they are filed within three years of the date of death of the testator. Spreading the will preserves it so if you discover a probate asset five years after the death, the asset can be transferred under the terms of the will.
Finally, you might be asking what difference it makes if a will has to be filed when a trust doesn’t. One reason is money. Probate can be expensive. Another reason would be confidentiality and privacy. Probate is an open proceeding and most everything filed in court is accessible to the public. That means that virtually anyone can go in to the clerk’s office and review the court’s file. Things that someone would find in a court’s file could include inventories, accountings and lists of heirs. Trusts, on the other hand, are rarely ever filed, so they don’t become public records.
Christopher W. Yugo is an attorney in Crown Point. Chris’ Estate Planning Article appears online every Sunday at www.nwi.com. Address questions to Chris in care of The Times, 601 W. 45th Ave., Munster, IN 46321 or to Chrisyugolaw@gmail.com. Chris’ information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant, or estate-planning specialist.