What's the Difference Between a Will and a Trust?
If you watch movies, television, read the news, or have ever received an inheritance, chances are that you have heard of a will or a trust. But do you know the key differences between wills and trusts? And more importantly, do you know which estate planning device is the best fit to protect your family and legacy?
Wills and trusts are estate planning documents that set forth the creator’s wishes and instructions for the distribution of property upon the creator’s passing. In short, both wills and trusts set forth who gets what, when, where, and how. So then what makes wills and trusts different and why do the differences matter?
Probate Avoidance
One of the biggest advantages of using a trust versus using a will is that assets held in a trust will avoid California’s long, time-consuming, and often expensive court-supervised probate process.
The general rule is that when a person passes away in California, all of their assets must go through a court-supervised process called probate. This involves filing a Petition for Probate, getting the administrator or executor appointed, marshalling and accounting for all assets, dealing with creditor claims and payments, selling assets, and finally petitioning for a court order to distribute the estate funds to the beneficiaries. In California, this entire process often takes up to two years to complete.
However, there are a few situations in which probate is not necessary:
Estates with a total value less than $166,250 do not need to pass through probate (a Small Estate Affidavit can be used in lieu of formal probate proceedings);
Pay-on-death or transfer-on-death accounts do not need to pass through probate (i.e. certain bank accounts, life insurance policies, certain retirement plans, etc.); and
Assets held in a properly executed trust do not need to pass through probate.
If avoiding probate is a top concern for you and your family, then a trust-based estate plan may be the right choice for you.
Privacy
Another advantage of using a trust versus using a will is the increased level of privacy that a trust provides. When your will is admitted to probate, it becomes a public record. Your assets, beneficiaries, and specific distribution instructions can be accessed and viewed by anyone who searches court records online. Apart from the obvious lack of privacy, there are two big concerns with having your will accessible to anyone:
Search firms and companies pull court records and will contact suspected relatives of the deceased who may have a claim to a portion of the estate. It can cost thousands of dollars in attorney’s fees to defend the estate from these potential claimants if they choose to challenge the will.
Creditors of the beneficiaries of the will can pull court records and see exactly how much the beneficiary received in an inheritance and when, allowing the creditor to strategically recoup any outstanding debts the beneficiary may have.
A trust, however, is almost never filed in court and thus will not become publicly available. Under California Probate Code Section 16061.7, only the beneficiary of the trust and the trustor’s heirs-at-law are entitled to receive a copy of the trust.
Incapacity Planning
Many people think that estate planning only involves planning for what will happen with your assets upon your death. However, a key component of estate planning is planning for what will happen with your assets (and you!) upon your incapacity.
A will is an estate planning document that only becomes effective upon your death. A trust is meant to be effective upon both your incapacity and your death, meaning that upon your incapacity, your successor trustee has immediate powers to manage the assets held by your trust and ensure that those assets are used to take care of you. Without this immediate grant of power, a court-supervised conservatorship may need to be opened in order for you to have access to your finances and assets, resulting in time and costs.
Short-Term Vs. Long-Term Savings
It is common that many individuals and families choose a will over a trust to save on initial set-up costs. While a will-based estate plan is generally less expensive to establish, the cost savings are only for the short-term.
In California, probate attorney fees are set at certain percentages based on the gross value of the estate. In Orange County, many families who own their home will have a gross estate worth at least $1,000,000. Such an estate should expect to pay a minimum of $24,000 in attorney’s fees alone to complete the probate process. If there are any complexities or litigation that arises out of probate, those fees will increase by thousands of dollars.
A trust-based estate plan may cost more up-front to establish, but the fees involved in administering a trust often range from $3,500 to $15,000. In the long-term, trusts can provide a cost savings of up to $20,000 when compared to a will. That’s a significant chunk of change that can go directly to your beneficiaries rather than to a probate attorney.
Is a Will or a Trust Right For You?
The question of whether you and your family are best served by a will or a trust will depend entirely on your family’s unique circumstances and goals. Schedule a Free Consultation with estate planning attorney Kayla M. Brennan or complete this form to find out whether your family should establish a will or a trust as the center of your estate plan. Brennan Law Office provides wills, trusts, and estate planning services to individuals and families throughout California, including the areas of Irvine, Costa Mesa, Tustin, Newport Beach, Orange, Lake Forest, Mission Viejo, Laguna Hills, Laguna Beach, Huntington Beach, and many more.