Wills and trusts are common legal documents used in estate planning to distribute assets after someone dies. While they have some similarities, key differences exist between wills and trusts in California. Understanding these differences allows you to determine which option may be better suited for your unique needs. Estate planning attorney, Daniel Rodriguez breaks down the key differences between using a will and a trust in your estate plan.
What is a Will, and How Does it Work?
A will is a legal document that lets you distribute your assets and property to your chosen beneficiaries after your death. It also allows you to name an executor overseeing your estate and ensuring your wishes are carried out.
To create a valid will, you must:
- Be 18 years or older and of sound mind
- Sign the will in front of two adult witnesses who are not beneficiaries
- Have the will notarized
Once signed, a will goes into effect after your death. The executor named in the will initiates the probate process by filing the will with the probate court. The court reviews the will, appoints the executor, and gives them legal authority to gather and distribute assets to beneficiaries.
Key Points About Wills:
- Only take effect upon your death
- Names an executor to oversee the probate process
- Follows terms you set for distributing assets to beneficiaries
- Subject to review by the probate court
- Assets transfer to beneficiaries after probate
What is a Trust and How Does it Work?
A trust is a legal arrangement that allows assets to be transferred to be held and managed by a trustee to benefit designated beneficiaries. There are different types of trusts, but they all involve these main roles:
- Grantor or settlor – Is a person who creates the trust
- Trustee – A person who manages the assets in the trust
- Beneficiaries – The people who receive assets from the trust
To create a trust, the grantor signs a trust document detailing how the trustee will manage and distribute the trust assets. The grantor transfers assets into the trust, which the trustee controls for the beneficiaries.
There are two main types of trusts:
Revocable Living Trust
A revocable living trust entitles you to place assets like your home, bank accounts, or investments into the trust while you’re alive. As the grantor, you maintain control over the assets. You can remove assets at any time or dissolve the trust entirely.
Upon your death, assets in the trust transfer directly to the beneficiaries, avoiding probate. The successor trustee allocates assets according to your instructions in the trust document.
With an irrevocable trust, you permanently transfer assets into the trust and cannot alter the terms later. This can be beneficial for tax planning purposes.
The trustee manages the assets for beneficiaries based on the irrevocable terms you set forth. Assets transfer to beneficiaries upon your death without probate.
Key Points About Trusts:
- Created and take effect while you’re alive
- Designate a trustee to manage assets for beneficiaries.
- Terms are defined in a trust document.
- Assets transfer directly to beneficiaries upon death.
- Avoid the probate process.
Key Differences Between Will and Trust
While wills and trusts can both distribute your assets at death, there are several key differences between the two:
- A will only take effect at your death, while a trust is effective as soon as you create and fund it.
- Wills must go through probate to distribute assets, whereas trusts allow assets to be transferred privately upon your death.
- With a will, the probate court oversees validation and distribution. A trust avoids court oversight.
- You can modify a will or trust, but it will require changing the document. Trusts allow you to change asset distribution simply by moving assets in/out.
- Wills are subject to creditor claims during probate. Trust assets may be protected from creditors.
- Probate is a public record, but trusts allow for the private transfer of assets.
- Will do not protect you if you become incapacitated. Trusts build in continuity of management.
The main differences are that trusts allow you to dodge probate, minimize estate taxes, and provide greater privacy and control over your assets during and after death compared to wills.
Who Needs A Trust Instead Of A Will?
Whether you need a trust or a will depends on your unique situation and goals. Here are some factors to consider:
- Size of your estate – If your estate is below your state’s threshold for filing estate taxes, probate through a will may be sufficient. Larger estates can benefit more from a trust to reduce estate taxes.
- Desire to avoid probate – Trusts allow your assets to transfer privately, more quickly, and at a lower cost than probate.
- Privacy concerns – Will become public records during probate. Trusts maintain privacy over the distribution of assets.
- Incapacity planning – Wills do not protect you if you become incapacitated. Trusts build in the management of assets if needed.
- Control over distribution – Trusts provide more flexibility for how assets are distributed over time versus a one-time distribution with a will.
- Complexity of assets – Trusts can be useful if you own assets like real estate or a business in multiple states.
- Tax planning needs – Certain trusts can provide estate and gift tax planning benefits that will not.
A will may be all you need for small, simple estates without tax concerns. For larger, more complex estates, trusts often provide significant benefits. Consulting an estate planning attorney can help determine the best options for your situation.
What is a Living Trust and Will?
A living trust and will are often used as part of a comprehensive estate plan. Here’s how they work together:
- The living trust is created while you’re alive to avoid probate for assets transferred into the trust.
- A pour-over will direct any additional assets not already in the living trust to be transferred there upon your death.
- The pour-over will name a trustee to manage assets transferred into the trust if you become incapacitated.
- It also names an executor to oversee the rest of your estate and file the will with probate court after your death.
- As summarized in the trust document, the trustee distributes assets from the living trust to beneficiaries upon your death.
- Any additional assets passing through the will follow probate and are distributed according to instructions in your will.
Using a living trust and pour-over will allow most assets to avoid probate through the trust while catching any leftovers through the will process.
Frequently Asked Questions:
How does the probate process relate to wills and trusts?
When a person dies with only a will, their assets must go through the probate court process. This process involves validating the will, paying off debts and taxes, and allocating the remaining assets to the beneficiaries. However, assets held in a trust are not subject to probate, saving time and potentially reducing costs.
What happens if I don’t have a will or a trust?
If you die without a will or a trust, your property and assets will be allocated according to the state law of intestacy. This means that the court will determine who your heirs are and how your assets will be divided, which may not align with your wishes.
Can a trust help with tax planning?
Yes, a properly structured trust can offer tax benefits. For example, certain types of trusts can help you minimize estate taxes or take advantage of tax-saving strategies. Consulting with an estate planning attorney can help you determine your situation’s best options.
In Conclusion: Will vs. Trust in California
Choosing between a will and a trust in California hinges on one’s individual needs, privacy preferences, and estate complexities. While wills offer a straightforward approach to asset distribution after death, trusts provide more immediate control and can bypass the often time-consuming probate process.
Generally speaking, a trust is usually the best option for most.
For residents in Chico and Northern California, Legal Norcal is well-equipped to provide guidance on these matters. Book a consultation today to ensure your assets are managed and distributed in alignment with your wishes.