While an estate and trust seem similar, there are some key differences and it is important to understand them.
What is an Estate?
When a person dies, all property titled in their name at the time of their death instantly becomes owned by his or her estate. Meaning, an estate at the instant of death owns property, but no one has any authority to administer the estate assets without court appointment. No Will is binding until it is admitted to probate, so it does not matter what a Will says until a Court “blesses” it as the VALID LAST Will and Testament of the Decedent by signing an order admitting it to probate. A Will stuffed in a file or a box that is not presented to a court or admitted to probate is meaningless. Also, if the Decedent died without a Will (intestate), heirship must be determined by a court to pass title to the decedent’s property. Absent a Judgment Declaring Heirship, title remains in the estate of the decedent and no one can pass clean title to that property. It is imperative to get title passed from a decedent’s estate to whomever is entitled to it because the passage of time changes the situation as people die and different beneficiaries or heirs are established.
What is an Estate Administration?
An estate administration is started when a Will is admitted to probate (testate) and an “executor” is appointed or when a person dies without a Will (intestate) an “administrator” is appointed. Whomever is appointed to administer the estate is also known as a “Personal Representative”. A Personal Representative can be an individual or an entity, usually a corporation, like a bank or trust company. The Personal Representative is instantly a fiduciary for all beneficiaries of the Estate. A bank or trust company that serves is also known as a corporate fiduciary. The process requires the Personal Representative to give notice to beneficiaries and creditors, to pay outstanding debts of the decedent in due course of administration and to, ultimately, distribute in the net estate after paying all decedent’s outstanding debts or creditors to the beneficiaries (testate) or heirs (intestate) of the Estate.
What is a Trust?
Instead of being a separate legal entity, a trust is a relationship where one person, called the settlor or grantor, and sometimes the trustor, transfers ownership (legal title) to another person, called the “trustee”, to manage and distribute to income and principal to its beneficiaries, according to the terms of the trust agreement; sometimes referred to as the “Rulebook” for the trust. The trust agreement is a document that outlines the rules and provisions for managing and distributing the trust assets.
There are several types of trusts, including revocable trusts and irrevocable trusts. A revocable trust can be amended or revoked by the trustor at any time, while an irrevocable trust cannot be amended or revoked once it has been created.
What is a Trust Administration?
Administering a trust is much like the estate administration. The assets are held and debts or creditors of the trust are paid with distribution to occur according to the trust agreement.
The Main Differences between a Trust and an Estate
There are several key differences between an estate and trust:
- Estate. While property of a decedent becomes owned by his or her estate upon the moment of death, an estate can only be opened by a court of law.
- In other words, the estate administration does not start until a court appoints a duly qualified executor or administrator.
- An estate is a public record, filed in the open record of a court and is not private.
- Trust. A trust, on the other hand, is created by an overt act of a settlor or grantor, in writing or done verbally, during his or her lifetime, known as an inter vivos trust, or it can be created post-death, via the settlor’s/grantor’s Will admitted to probate .
- To create a trust, the settlor or grantor must convey an intent to create a trust, must actually fund the trust by delivering property to a designated person, known as a trustee, who accepts the fiduciary relationship of being a trustee and all its duties, to hold that property for the benefit of another.
- Of course, no one can force another to be a trustee and to take on the responsibility of a trustee.
- A court is not necessary to create a trust, but one may be created by a court.
- A trust and its terms may be kept private and is not subject to revelation without a court action and, even then, it can be ordered kept confidential.
Planning for the Future.
Trusts can be useful tools for protecting wealth and planning for the future. In split families, where there are second or more spouses and additional children or step-children, trusts can be created during life or in a Will, to protect wealth for each family and the surviving spouse. Trusts can preserve a decedent/testator’s estate tax exemption amount in a trust, allowing the surviving spouse the benefit of all the income during her or his life, with the remainder passing to children from a prior marriage or all marriages. Trusts can be use to protect a child from spending most or all of his or her inheritance, particularly, if he or she is bad with money or has addiction problems or a greedy spouse. A trust can also be used to protect assets from creditors via a spendthrift provision. There are myriad other reasons to create a trust, but you should consult with a qualified attorney to obtain such planning. We, at Alvine Law, LLP, do not plan estates, but we can help you find a qualified estate planner, if you need one.
Contesting an Estate or Trust.
An “Interested Person” in an estate or trust is defined in South Dakota statute at SDCL 29-A-1-201(23) as:
“Interested person” includes heirs, devisees, children, spouses, creditors, beneficiaries, and any others having a property right in or claim against a trust estate or the estate of a decedent, minor, or protected person. It also includes persons having priority for appointment as personal representative, and other fiduciaries representing interested persons. The meaning as it relates to particular persons may vary from time to time and must be determined according to the particular purposes of, and matter involved in, any proceeding.
Only an Interested Person may file a contest in an estate or trust, and that contest is not, technically, a contest of the estate but, rather, it is a contest to a document that controls or involves the estate, often referred to as a “Will (or Codicil) Contest. An interested person might also contest the behavior of the fiduciary Personal Representative’s and complain of its malfeasance in administering the estate in a breach of fiduciary duty lawsuit, also known as fiduciary litigation. Often contesting a trust agreement or an amendment to a trust agreement is referred to as a trust contest, but really it is a contest to the validity of the trust, an amendment to a trust or a construction suit over the interpretation of the terms of the trust, like how, when and to whom the trust should distributed.
Modifying a Trust?
It might also be possible to modify a trust via the court system or through a less formal method known as “decanting” or “decanting a trust”. It is a bit of a slang term akin to decanting wine. Depending on and only within the trustee’s fiduciary duties, a trustee may be able to transfer property in one trust (pour it) into another new trust with different provisions. In some instances, the latter can mean a trustee can modify the beneficiaries of the trust and, in others, the beneficiaries must remain identical.
Fiduciary Litigation & Breach of Fiduciary Duty.
If you think an estate or a trust is being mismanaged and that fiduciary is breaching his, her or its fiduciary duties to the trust beneficiaries, by not following the Ruebook, falling to distribute assets according to the terms of the trust or Will, because of self-dealing or bias or hostility or failure to act in good faith or myriad other reasons, you may be able to sue the fiduciary for removal from office or damages.
Contact Us Today.
Very specific laws dictate contesting or construing a Will or trust, modifying a trust or suing a fiduciary and these laws are difficult for many lawyers to fully understand, much less someone that is not properly trained in the law or this area of law. So, it is imperative that you seek legal advice and hire an attorney before doing so, and do contact an attorney as soon as possible. In these contests, the passage of time matters and the process can be complex, so it is important to have an experienced attorney on your side to protect your rights and interests.
At Alvine Law Firm, LLP, our team of experienced attorneys can help you understand your rights and options, and we are happy to help you understand them. We serve clients throughout South Dakota, with offices in Sioux Falls and Mitchell. Contact us today to schedule a consultation.