California Estate Planning

Living Trust vs Will In California

Will vs. Living Trust

What’s really interesting is all of the false information that you’ll find on TV, in newspapers on the internet about a living trust vs will in California, it’s a really common question we get. In particular, a lot of the things you’ll read or see is that a will is sufficient for most folks. In our experience, that is simply not true. To understand why that’s not true, let’s discuss a little bit about a will versus a living trust and what the differences are.

The way I like to start explaining a will versus a trust is to simply say that a will is a set of instructions for a probate court judge. Now, you may not know what probate court is, we’ll need to explain that a little bit. Essentially, probate court is the court-mandated process for when a person passes away without a trust and when they own assets. If you own assets and you pass away, and mind you those assets could be a very small amount. Nonetheless, when you own something and you need to pass it on to your heirs, the court needs to get involved, that does not have to happen if you have a living trust.

Additionally, probate is required if you have minor kids and a probate court judge has to sign off on who would get custody of those kids. There are situations where a will is required such as if you have minor kids. Having said that, you can make the process much easier on yourself if you have a living trust and a will becomes a secondary document. Again, getting back to the initial definition is that, remember a will is a set of instructions for a probate court judge, In those instructions, you might specify who gets to take your house and who gets to take your cash or other assets. You can be specific about it. You can provide the assets in terms of percentages.

However, you want to do it you can do it but the point is is that if you have a will you are guaranteed, or rather your heirs are guaranteed to go to probate court. This is different if you have a living trust. Let’s go over those differences, a living trust specifically will bypass probate, not only will it bypass probate but it’s a private document. Remember, a will because it’s a set of instructions for a probate court judge, gets lodged with a probate court and any court proceedings are public and so your will becomes a public document. For most folks, that’s something that they don’t want to do.

A living trust allows a administration to occur very quickly, efficiently, at a lower cost and privately. With probate court, back to that nasty topic, probate court because it’s court, is necessarily long, costly and sometimes you don’t know what results you’re going to end up with. Back to a living trust, you can administer your assets or rather your heirs when it’s time to administer your assets, can do so very quickly, a lot quicker than if they had to go through probate court without any publicity, without it being public and at a much lower rate.

It’s really important to understand a living trust versus a will and the misinformation that’s out there, because in all honesty whether you have $50,000 or $50 million, in our experience we regardless refer folks to the living trust document to serve as the main part of their estate plan. Because even if you don’t have that many assets today, who’s to say that you won’t necessarily have that many assets a year from now or five years from now? That would be our recommendation, even if you don’t own too many assets, go ahead and prepare a living trust estate plan.

Honestly, in our firm all estate plans are the same price regardless of whether they’re will-based or trust-based. You might find the same to be true in other firms because they still take just as much time to put together. If you have any questions, feel free to give us a call to discuss a living trust versus a will, and we would be happy to answer them for you. Thanks for listening. Come back and check us out for more videos.

When it comes time to consider how you will protect the assets you have worked hard for throughout your life and pass them on to your family once you are gone, there are a number of options for you to consider. One question you might be asking “What’s the difference between a Will vs. Living Trust?” Finding the right fit for your Estate Planning needs requires a careful consideration of your personal circumstances as well as your wishes, and the answer to Living Trust vs. Will may require a lot of careful consideration to determine the right fit for you. This post will examine what is a Will and what is a Living Trust and compare the difference between a Living Trust and Will.

What Is a Living Trust?

A Living Trust is essentially a legal entity you can create with the help of your attorney which can hold ownership of the assets you transfer to the Trust. It is referred to as a “Living” Trust because unlike some other Estate Planning tools, it is created and operates while you are alive. Ordinarily, this type of trust remains “revocable,” meaning you can retrieve your assets from the Trust, make any changes to it, or even dissolve it completely while you are alive; and it then becomes “irrevocable,” or unchangeable, once you die. The Trust invests the assets to benefit the Beneficiary, which tends to be the person who set up the Trust (the “Grantor”) during the Grantor’s life and will have a Successor Beneficiary or Beneficiaries who will become the Beneficiaries upon the death of the Grantor.

The individual who makes decisions for the Trust is called the Trustee, and in this type of Trust is usually the Grantor during the Grantor’s life. In addition, the Grantor normally names a Successor Trustee who will manage the Trust if the Grantor is unable to do so due to death or mental incapacity.

A Living Trust helps you by allowing you to know that your assets will be protected and managed if you become unable to manage your own affairs and can be easily distributed upon your death. One common reason that people choose to utilize a Trust is that any assets owned by the Trust will not have to go through the Probate process to be distributed to your heirs. Instead, you can designate your heirs to become the Beneficiaries upon your passing. The Trust can then be structured in several ways and can immediately distribute your assets among the Beneficiaries or distribute the assets over time in amounts you have specified.

The Successor Trustee can be one or more of your heirs, or if you have concerns about their ability to divide up or manage the assets owned by the Trust according to your wishes, you can also designate a professional fiduciary who can manage the Trust in the way you desire.

What Is a Will?

A Will is a legal document that you (the “Testator”) create with your attorney to indicate what will happen with your assets after you pass away. All of the things you own, whether the real property (e.g., your residence, investment property, etc.) or personal property (anything from vehicles to picture frames and everything in between), are considered part of your “Estate” when you pass away. In your Will, you designate someone to manage your Estate after your death, an “Executor.” The Executor’s role is to ensure all items in the Estate are distributed according to the wishes of the Testator.

In your Will, you will designate who you want to receive the items in your Estate after your death, and additionally, may designate a Guardian for your minor children and dependents. Anyone who will receive any property under the terms of your will is considered a Beneficiary.

There are certain assets which cannot be distributed under a Will, including most insurance policies, pensions, or retirement accounts. Typically, those accounts and policies require you to designate your future intended Beneficiaries at the time they are opened or set up. Keep in mind, for any property that is jointly owned by you and someone else, the only thing that will pass to your Beneficiaries under your Will is your interest in the property in question. Your Beneficiaries would essentially step into your shoes and co-own that property with your co-owner. Not to mention, joint ownership of real property fails to take advantage of a very important tax benefit known as a basis step-up. Read more about that here.

When you pass away, all the property you own is deemed to be owned by your Estate. In order to distribute those assets to your heirs, the legal process referred to as “Probate” will be initiated by your Executor to have the wishes you set out in your Will carried out. If you die without a Will in place, your Estate assets will still be distributed through Probate, but the court will appoint an Administrator to determine, under the law, who is entitled to the assets of your Estate and to distribute them accordingly.

The Differences Between a Will and a Living Trust

While both Wills and Trusts help to effectively distribute your assets once you pass away, the difference between a Living Trust and a Will are numerous. If you are considering a Will versus a Trust, some of the differences to think about include:

  • Trusts cannot be used to designate a Guardian for any minor children or dependents, while Wills can. However, when you create a Living Trust Estate Plan, if you have minor kids, you should have both a Trust and a Will. The Trust will be used for everything, except the Guardian nominations, which cannot be accomplished with the Trust.
  • Wills must go through the Probate process, but Trust assets do not.
  • A Trust may be utilized to set up an asset manager in the event you become incapacitated, but a will cannot do that.
  • Setting up a will is relatively easy and affordable, while a trust setup can be more expensive due to the need to create the trust documents and transfer ownership of assets to the trust.

When considering a Living Trust vs. a Will, there are a number of important factors to consider. Often times, people assume that, because their situation is “simple”, a “simple” Will can suffice for their planning needs. These same people wonder whether Trusts offer more benefits than Wills, but because their situation is “simple”, there is no need to complicate matters with a Trust. It’s important to realize that while Wills and Trusts both have unique features, Trusts are not just for rich seniors, which is the prevailing but false narrative. Trusts are important and have more benefits than Wills for young adults, parents with minor kids, investors, current homeowners, future homeowners and, for that matter, anyone who is concerned about making life easy for themselves and their loved ones, in the event of incapacity or death. With all that said, once you understand that both a Will and Trust serve different and complimentary purposes, the question of Will vs. Trust becomes less important, because it’s not a matter of which to use, but instead, you use a combination of both.

living trust

Some benefits of the Living Trust include:

  • There is no probate. A Will is merely a set of instructions for a Probate Court judge and, as such, a Will has no legal effect until it goes through Probate, which it must necessarily do in order to effectuate the Will-makers wishes. Rather, a Living Trust is a document that is effective immediately upon execution and does not get filed anywhere. Thus, a Living Trust beneficiary will have no need to go through a complicated, costly and lengthy court process.
  • A Trust is more private than a Will. Do you want your personal information publicly known to everyone, forever? If not, choose a Living Trust.
  • Even if your property is spread across different states, it’s not a problem. A properly prepared Living Trust helps to manage all of the assets through one vehicle.
  • Lower costs. There is no need to pay extra money for the court processes and so on.
  • Incapacity planning. When you are no longer able to properly manage your assets, a Successor Trustee can easily step into your role. During this time (of your incapacity), the Successor Trustee serves to benefit you (since you were the Initial Trustee + Beneficiary). As soon as you’re able to resume your duties, you can regain control, just as easily as you relinquished control (i.e., through a simple Trustee designation).

Disadvantages of a Living Trust:

  • Complexity. A Living Trust is not entirely simple, and even lawyers can get confused by them. Take the time to learn and, despite their complexity, you’ll understand why they are the preferred method for transferring assets to your loved ones.
  • Initial Cost and Firm choice. Do your research and choose a reasonably priced law firm with at least 5-10 years of experience, which has prepared at least 1000 Estate Plans. While it is important to use a law firm (and not just a legal services provider), some law firm charge as much as $6,000 to prepare a complete Estate Plan, while others such as ours are much more competitively priced due to use of technology and streamlined processes.
  • Maintenance. Don’t forget about keeping up with changes. A Revocable Living Trust has flexibility specifically because it is meant to be updated from time-to-time. Make sure to work with a law firm that offers a Living Trust Maintenance Plan so that any changes are quick, easy and reasonably priced.

Trusts can generally be divided into two categories:

Irrevocable Trusts. Just as the name implies, if a trust is irrevocable, its terms cannot be changed. There are some workarounds for the seemingly rigid structure, however, these trusts do involve you giving up control of the assets since you give up any incidence of ownership to the assets. You can set up an irrevocable trust during your life, or after you pass away. Although you may wonder why anyone would ever want to give up ownership of their assets, the answer is mainly two-fold: 1) the assets are no longer part of your estate (for tax purposes) and 2) the assets become asset protected against any creditors and predators of the irrevocable trust beneficiary. These trusts are more complicated to setup and administer, and should primarily be used as an advanced Estate Planning strategy. They are essentially a separate entity, each having their own Tax Identification Number.

Revocable Trusts. These types of trusts are by far the most common. As explained above, they are primarily used for Probate Avoidance and Incapacity Planning. You have complete control over your assets, and you can revoke or amend the trust terms as often as you’d like. In fact, other than the ownership title of the assets, nothing much changes – you even still file taxes just as you always have – using your name and personal social security number.

Summary For Living Trust vs Will In California

If you have $5 or $50M dollars, a revocable living trust is generally the right choice for your Estate Planning. Of course, there are other ways to transfer your assets, such as doing nothing and using state default rules, or by creating a Will. However, by not using a Living Trust as the cornerstone of your Estate Plan, you may be asking to pay more, wait more and have no guarantees as to our wishes.  If you are still not sure which is best for you, or if you just have some lingering questions, you can call a Revocable Trust attorney for a free consultation.

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