Wills and trusts are the legal documents that enable people to distribute their assets and belongings as they see fit. Offering detailed information on wills and trusts is beyond the scope of this report; however, a few major differences between them are outlined below.

Wishes relayed through a will take effect only after a person's death. Also, wills go through a public legal process called probate unless the value of the estate lies below an amount set by each state. Probate helps ensure that heirs and creditors are notified of the death, that assets described are actually a person's to give away, and that assets go to the right people. This process can be lengthy and costly.

Trusts may be applied during a person's lifetime ("living trusts") or after death ("testamentary trusts"). The person who establishes the trust decides who the beneficiaries will be and when they will benefit. For example, a trust may be set up to help fund a grandchild's college education or to care for minor children if their parents die.

As part of estate planning, a trust may be used to officially gather assets — such as a house, money, or stocks — which can then be used for specific purposes during a person's lifetime. Generally, the trustee (person who establishes the trust) will control these distributions directly; alternatively, other trustees are elected to carry out his or her wishes. A trust may take effect immediately, at a particular point in time, or upon a triggering event, such as when a person can no longer handle affairs because of mental or physical incapacity. After the person who established the trust dies, remaining assets are distributed as specified. Trusts do not go through probate, so their contents are not made public.

Trusts can be costly to set up and may have implications for taxes and Medicaid planning that should be discussed with a lawyer experienced in estate planning. Whether the benefits of having a trust outweigh the costs hinges on many factors, including the size of the estate, marital status, children, potential estate taxes, and other options for handling the assets involved.

Some states permit "pooled trusts," essentially a pool of money funded by families and sometimes individuals to benefit someone with special needs or disabilities. Resources put into a pooled trust account can be paid out for extra assistance not covered by government benefit programs. Money set aside this way helps conserve assets for personal use without disqualifying the beneficiary from receiving Medicaid or Supplemental Security Income (SSI).

Pooled trust funds are invested and managed as a single account. Withdrawals from a beneficiary's portion of the pooled trust can be used to pay for supplemental needs, which might range from geriatric care services, extra nursing care, and the cost difference between a shared or private room in a nursing home to eyeglasses, diapers, guardian fees, and insurance premiums. Typically, much less money is required to enroll in a pooled trust than would be necessary to set up an individual trust. Available plans and fees differ from state to state.

While everyone should write a will, not everyone needs a trust. Encourage the person you care for to prepare a will and to consider whether a trust would be helpful, too. If no such documents exist, assets and belongings will be distributed according to state law — and that may not be in accordance with the person's wishes.

Don't forget that as a caregiver, you need a will, too. In it, spell out your beneficiaries and plans for handing over caregiving responsibilities if you die. To learn more about wills and trusts, speak with a lawyer who is qualified in estate planning.

Source: from Caregiver’s Handbook, Harvard Health Publications, Copyright © 2007 by President and Fellows of Harvard College. All rights reserved. Used with permission of StayWell.  Use of Content | Medical Disclaimer