Losing a loved one is a sad and difficult time for family, relatives, and friends. In addition, those left behind must often figure out how to transfer or inherit property from the person who has died.
To do this, you must usually go to court. And dealing with the courts and the property of someone who has died is very complicated. Sometimes, however, family or relatives may be able to transfer property from someone who has died without going to court. But it is not always easy to tell whether you need to go to court or qualify to use a different procedure.
The Difference Between a Will and Trust in California
The terms will and trust are familiar to most people. Both are useful devices for estate planning, but they serve different purposes. They can also be used together to form a complete estate plan.
It is helpful to understand what each document means, the differences between them, and how they complement each other. It is also a good idea to know what to look out for when putting together an estate plan or looking for services to help with the task. There are certain things to watch out for, and it’s always a good idea to consult with an attorney when considering one or the other – or both.
What is a Will?
A will is a legal document that provides instructions on how to distribute your assets upon your death. It enables you to choose an executor who then pays off your debts and manages the distribution of your assets, and handles administrative duties.
If you have children, a will enables you to name a guardian to raise your minor children in the event you die before they turn 18. If you leave assets to your children, you can choose a guardian to oversee those assets.
A will is not expensive to create, but it must go through a lengthy, sometimes costly, process called probate where your debts and any estate taxes are paid out of your estate before your heirs receive any bequests.
There are also additional fees that must be paid to the executor of your will, along with fees to the attorney and court. Once the will is filed, it becomes public.
What is a Trust?
A living trust (inter vivos) is a legal relationship where one person, called the trustee, holds the property for the benefit of another, called beneficiary.
The person who creates the trust is called the trustor or grantor may also be named trustee until he or she dies, and at that time, a successor trustee takes over.
The trustor creating the trust can transfer any kind of real or personal property to the trust during his or her lifetime. This includes money, real estate, stocks, bonds, business interests, personal possessions, collections, and vehicles.
The trustor may create a trust for his own benefit during his lifetime and then for the benefit of another person after he dies. The trustor may not choose a personal guardian for his or her own children as part of the trust.
A trust is somewhat expensive to create and manage, but it does not have to go through an expensive and time-consuming process of probate. Beneficiaries receive their gifts immediately according to the instructions in the trust. Once filed, the trust is private and not open to the public. There is not public record.
What are the Differences?
Both wills and trusts are helpful in planning estates. But there are differences. A trust takes effect as soon as you create it. Your appointed trustee can begin distributing property right away, during your death, or afterward. A trustee is often a bank or law firm and is usually given legal title to the property on your behalf. This property must have been put in the name of the trust to be covered.
Aa trust is often designed for two sets of beneficiaries – one that receives income from the trust during their lives and another that receives whatever remains after the first set of beneficiaries dies.
A will takes effect when you die, and it appoints an executor to carry out your wishes for the distribution of your property at that time. This property must be in your name when you die to be included in your will. Property not covered by a will includes anything in a trust or joint tenancy.
Another difference between a will and a trust is that a will goes through the probate process where the court oversees the administration of the will and ensures that the will is valid, and the property gets distributed according to the will provisions. A trust does not go through probate, so there is no need for a court to oversee the process. The trust remains private.
Which to Choose?
Once you understand the purpose, cost, and benefits of wills and trusts, you should consider which one is better for you, depending on your particular circumstances.
You can check with the state of California to see if your estate is under the dollar threshold for getting an expedited form of probate. This is an informal process that can save you time and money. An attorney can help with this.
If you want to avoid probate, but have only bank and retirement accounts, you don’t need to create a trust. You can transfer accounts to beneficiaries by filling out beneficiary forms – TOD (Transfer on Death) or POD (Pay on Death).
If you want to transfer real estate outside of probate, you will need to have a trust. If you have more than one piece of property, and especially if those properties are in different states, you should also consider a trust because multiple properties make the probate process more complicated and expensive.
There are many other factors to consider as well including children grandchildren, size of the estate, tax implications, and more. An attorney can help you sort things out and help you choose a will, a trust, or both.
Choosing Both Will and Trust
In California, state law allows its residents to use both a will and a living trust together if they so desire.There are definite benefits to using a combination of both. One is that the will allows you to name your executor and a guardian for your children, which the trust does not do, but the trust provides funds for the children’s care or for future expenses like a college education.
The trust allows you to pass your property directly to your beneficiaries and avoids probate, which the will does not do.
Hopefully, now you have a better understanding of wills and trusts in California. And hopefully, you will know if you need them or not. You should be aware that, according to the California Attorney General, there are people who try to sell living trusts to residents who don’t need them. Seniors are particularly vulnerable to buying a service to set up a trust.
In the process of setting up the trust, sensitive information is shared, and this information is misused to sell other services not needed. If you or your family is considering a living trust, it is wise to consult with a qualified, certified attorney to make sure you are doing the right thing and going about it in the right way.