What is a Will?
A Will is a set of instructions of your last intentions for your property. It is a legal document that indicates who gets what, how and when after your death. A Will does not take effect until after the author's (referred to as the testator) death. Then, the Will must be probated, which means that a court will oversee the distribution of the assets after all debts are paid. The bottom line is that your heirs get considerably less because of all the additional costs. In California, where probate fees are high, generally a Trust is a popular method used to distribute your assets instead of a Will. Working with an attorney to create a Trust is less expensive than the costs of probate in California.
What if I die without a Will?
Dying without a Will is referred to as dying “intestate.” California state law will determine who gets what from your estate. Plus, if you own additional real estate in another state or country, another probate must be opened in that location.
What is a Trust?
A Trust is a legal document created with the primary purpose of specifying who gets what, when, and how much of your wealth, after your death. Strictly speaking, it is a separate legal entity which creates a fiduciary arrangement with a third party who will manage your wealth after your death or during your incapacity. The most common Trust is the Revocable Living Trust and it takes effect once you have signed it. In California, the Revocable Living Trust is the primary method of distributing your assets after your death when you want to avoid the costs of Probate and its public records. Other advantages include incapacity planning and quicker distribution of assets to the beneficiaries.
Do I really need a Trust?
Although many people equate “estate planning” with having a Will, there are many advantages to having a Trust as the centerpiece of your estate plan. While there are other methods for passing some of your property (such as joint tenancy, community property with rights of survivorship, transfer on death, beneficiary designations, to name a few), only a Trust provides comprehensive management of your property after your death or in the event you can't make financial decisions for yourself (commonly called legal incapacity).
One of the primary advantages of having a Trust is that it provides the ability to bypass the publicity, time, and expense of probate. Probate is the legal process by which a court oversees the distribution of assets to the rightful heirs of a deceased person through the administration of the estate. Probate in California can easily cost thousands of dollars and often takes over a year, and can take two years or more to resolve. Of course, not all assets are subject to probate. Some exemptions include jointly owned assets with rights of survivorship as well as assets with designated beneficiaries (such as life insurance, annuities, and retirement accounts) and payable upon death or transfer on death accounts. But holding property in a joint tenancy and designating beneficiaries doesn't provide the ability for someone you trust to manage your property if you're unable to do so, so they are incomplete and piecemeal solutions. Plus, just having a Will does not avoid probate.
Save Money and Keep Your Affairs Separate
Considering the cost of probate should be a factor in your estate planning, as creating a trust can save you both time and money in the long run. Of course, if your probate estate is small enough - or it is all going to a surviving spouse or domestic partner (which can create other issues as well) - you may qualify for a Small Estate Set Aside. In California, if your assets are worth $150,000 or more, you will not qualify for this simplified probate. There are probably only a very small number of homeowners in California who could qualify for the Small Estate Set Aside. Moreover, if you own property in another state or country, the probate process will be even more complicated because your family may face multiple probate cases after your death, one in each state where you owned property - even if you have a Will. Beyond the cost and time of probate, this court proceeding, which includes your entire financial life and last wishes, is public record. A Trust, on the other hand, creates privacy for your personal matters as your “legal heirs” would not be made aware of the distribution of your assets; knowledge of which may cause conflicts or even legal challenges.
More Control Over Your Money
A common reason to create a Trust is to provide ongoing financial support for a child or another loved one who may not ever be able to manage these assets on their own. Through a Trust, you can designate someone to manage the assets and distribute them to your heirs under the terms you provide. Giving an inheritance to a young heir directly and all at once may have unanticipated and undesirable effects, such as a rapid spending down of all of the money; enabling and funding an addiction; encouraging irresponsible behavior that you don't find desirable; or disqualifying them from receiving some form of government benefits. A Trust can also come with conditions that must be met for the person to receive the benefit of the gift (for example, finishing college). Thus, you should strongly consider creating a Trust.
Plan for Possible Incapacity and Protect Loved Ones
Furthermore, if you ever become incapacitated your successor trustee - the person you name in the document to take over after you pass away - can step in and manage the trust's assets, helping you avoid a conservatorship (which is basically a guardianship for an adult, rather than a child). This protection that you have built into your Trust can be essential in an emergency or in the event you succumb to a serious, chronic illness. Unlike a Will, a Trust can protect against court interference or control while you are alive, as well as after your death.
Trusts are not simply just about avoiding probate. Creating a Trust can give you privacy, provide ongoing financial support for loved ones, and protect you and your property if you are unable to manage your own assets. Simply put, the creation of a Trust puts you in the driver's seat when it comes to your assets and your wishes as, opposed to leaving this critical life decision to others, like a judge who doesn't know you or your family. To learn more about Trusts - and estate planning in general, including which type of plan best fits your needs – let's start a conversation.