Introduction

For many people, the first thing that comes to mind when discussing an estate plan is a will. A will accomplishes some of the basic goals of estate planning: effectively and efficiently transferring your property to whomever you choose after you die. However, a will is not the only way to transfer assets after you die. A trust can also be used to do this and offers some additional benefits that a will lacks.

Why choose a will?

For some people, a will is the only estate planning document that they have and passes on all of their assets to the people of their choosing. For others, a will is just a small (but essential) part of the estate plan. A will, in its most basic sense, is a document in which you decide who gets your property after you die.

For those who have not yet reached older age and are relatively healthy, a will is sufficient in carrying out one’s basic wishes for the transfer of property in the event of unexpected death. A will also lets you choose a guardian for your minor children. As you get older, you can include more comprehensive estate planning options, including a trust, but as a starting point, a will accomplishes the most basic estate planning goals. Although there are some formal requirements for a will to be valid, a will is one of the more simple ways to accomplish your estate planning goals if you don’t want to bother with anything more extensive or time-consuming.

One aspect of having a will is that when you die, all the property left in your will must go through the probate process. Probate is a tedious and costly process and many people structure their estate plans specifically to avoid probate (as will be discussed, a living trust avoids probate). The probate process is designed to transfer legal title of property to those named in your will according to your wishes. Probate also resolves creditors’ claims against the estate before assets are distributed and gives those who might have a claim to the assets an opportunity to be heard in court. Another aspect of probate is that it is not a private process: all documents filed in the probate case, including the will, are public record and can be accessed by anyone. These are all things to consider when deciding on whether to create a will, and if so, what property to include in it and who gets what.

If you anticipate having large debts or owing taxes at the time of death, having a will ensures these issues will be resolved under the probate court’s supervision. Probate can also be beneficial in situations where there is hostility, a lack of trust and/or resentment among family members. Since the court supervises the process, beneficiaries’ rights are protected and the terms of the will are carried out under the probate court’s supervision.

The following are examples of property that cannot be left in a will and will be transferred outside of the probate process after you die:

-property transferred to a trust;

-life insurance proceeds;

-property held in joint tenancy;

-pension retirement plan funds;

-funds held in “payable-on-death” accounts.

In California, estates of $166,250 and under are not subject to the normal probate process and a simplified probate process is all that is needed.

Why choose a trust?

A trust is another common estate planning tool that allows you to transfer property to whoever you choose, while allowing for better management of property and greater flexibility. One of the major benefits of creating a trust is that it avoids the probate process. A living trust can also save you money and affords you greater privacy than a will.

A trust is a structure in which an owner of property (called a settlor, trustor or grantor) transfers legal title to property to a trustee, for the benefit of a beneficiary. The trustee manages the trust assets (the principal) to accomplish the settlor’s wishes laid out in the trust document. In a typical revocable living trust, you can name yourself as trustee and use the trust assets however you want while you’re alive. When you die, the trust becomes irrevocable and the back-up trustee (called a successor trustee) can simply distribute the trust property to the beneficiaries you chose according to the terms of the trust without having to go through the probate process. As such, using a trust can save significant time and costs after you die.

Since a trust accomplishes the goal of avoiding probate, it is generally advisable to transfer high-value assets worth to a trust, such as your house, stocks and bonds, investment properties and other high-value assets. If these items were included in a will and subject to probate, a percentage of their value would be lost to probate costs.

Another important consideration is choosing the right trustee to manage the property in the trust. In most cases with revocable living trusts, either you or your spouse will be the initial trustee and after you die, the successor trustee will take over managing the trust. As the name implies, it is important to choose a successor trustee whom you trust and whom you believe will be able to efficiently carry out the duties of a trustee.

Since it is not subject to the probate process, a trust is not publically accessible and provides a great deal of privacy regarding your property. Only the named trustees and beneficiaries will see what is contained in the trust.

Even if you decide to transfer all of your currently-owned assets into a living trust, it is recommended that you also create a back-up will as a safety net. In this will, you can account for any property you acquired after creating the trust and neglected to transfer to the trust. In this will, you would simply name beneficiaries who will receive all property not included in the trust. You can also name a guardian in this back-up will to care for any minor children you might have (since a trust cannot provide for guardians).

Conclusion

Both wills and trusts accomplish the goal of transferring your property after you die. Both have their benefits and drawbacks. The most important thing to do is to learn about the differences, reflect on what your goals are and come up with a plan that effectively and efficiently accomplishes those goals. We can help answer any questions you might have about your options when it comes to a will, living trust or any other estate planning document.