Will vs Trust in California: What’s the Difference?

senior man looking at will

Being an older puts you in a segment of the population that grew by 34% over the past 10 years, which means you probably follow the advice of the experts and exercise on a regular basis to keep your mind and body in good shape. Getting together with an estate planning attorney to create an estate plan can put your finances and estate in good shape and give you peace of mind knowing that you took control over how the wealth you created passes to your loved ones. A will or trust provides the method of managing and distributing wealth, but it can be difficult to understand how each of them could and should be used. This article gives you a comparison of the similarities and differences between a will and a trust.    

What is a will?

A will, which is also referred to by lawyers as a last will and testament, possesses the following elements and characteristics:

  • Identifies the assets you own.
  • Specifies how you want the assets distributed after your death.
  • Specifies the persons you designate to share in the distribution of your estate.
  • Names an executor to gather your assets, pay any estate taxes to the state and IRS, pay debts, and distribute the assets according to your wishes expressed in the will.
  • Letters testamentary refer to the court order officially granting authority to an executor named in a will to act on behalf of your estate.
  • Names a person you want a court to approve as the guardian to care for your minor children  after your death.
  • Wills in California and other states must be filed with a court for probate, so they become public records.
  • Becomes effective only upon your death.
  • Can be easily changed or modified through a document known as a codicil during your lifetime.

What is a trust?

Common elements of a trust include the following:

  • Becomes effective during your lifetime.
  • Settlor is the person who creates or settles a trust by transferring assets to it. A settlor may also be referred to as the grantor of a trust.
  • A trust agreement is the legal document creating a trust.
  • Trustee is a person named in the trust agreement or trust document to serve as the manager of the trust assets who ensures the wishes of the grantor contained in the trust agreement are carried out.
  • A beneficiary is the person or persons for whose benefit a trust is created. Beneficiaries may receive income from the trust and may also be designated to receive a distribution of the assets held in the trust depending upon the terms of the trust agreement. 
  • Trusts do not get filed, so they are not a public record and remain private.
  • A trustee carries out the terms of the trust without a probate process, which saves time and money and also maintains the privacy of the contents of the trust document.
  • Useful as a method of providing income to someone who is disabled 
  • Avoids estate taxes on assets transferred after death of the grantor.

Trusts in California

When you consult a law firm in California about creating a trust under state law, you may be offered the option of a living trust vs. a testamentary trust. Each of them has a trustee to hold and manage property transferred to the trust by a settlor for the benefit a beneficiaries. 

Both a living trust and a testamentary trust contain instructions for eventual distribution of the assets held in trust to the beneficiary. The primary distinction between them is that a living trust goes into effect during the life of the grantor. A testamentary trust does not become effective until the death of the grantor.

The most common type of trust is a revocable living trust. It usually is created by your estate planning attorney by naming you as the settlor, trustee and beneficiary. You have the right to change the terms of the trust document while you are alive, but it becomes an irrevocable living trust after you die with a successor trustee named in the trust taking over. 

When a trust is used to protect assets from creditors or to minimize your tax burden, your estate planning attorney may suggest creating an irrevocable trust from the outset. The decision about a revocable living trust over irrevocable one depends upon your financial circumstances and should be discussed with your attorney.

The primary advantage of setting up a trust is to avoid delays in distributing your assets to your children or other family members after you die. A will must go through the probate process in court, which takes time and can be costly. Assets in a living trust may be distributed without the delays and costs of probate and without being subject to payment of estate taxes.

A key disadvantage of a trust is its initial cost. Trusts require more of a lawyer’s time to create, so they may cost more than a will. It is difficult to come up with an average price for a trust because there are so many variables that affect it, including complexity of your finances and the experience level of the law firm. The best thing to do is shop around with estate planning law firms offering a free consultation. 

Wills in California

If you do not have a will or a trust directing how your assets and wealth should be distributed when you die, they will be distributed according to intestacy law in California. Intestacy laws distributed the real estate and other assets you own to your relatives according to a schedule written by the legislature. As a general rule, distribution begins with your closest relatives, so your spouse, children, parents and grandchildren come first with more distant relatives, such as brothers and sisters, aunts and uncles, and grandparents next in line.

A will gives you control over distribution of what you own. It also allows you to have flexibility by including in your will a testamentary trust. Instead of leaving assets to minor children or someone under a conservatorship who may not be able to manage an inheritance, a testamentary trust becomes effective after you die with a trustee to manage the assets and distribute income until the person inheriting them is old enough or mental competent to do so on their own.

As a general rule, assets that you place in a living trust pass to beneficiaries according to the trust document and do not become part of your estate when you die. Regardless of the terms of your will, if an asset is in a trust, the terms of the trust control how it will be distributed.

Do not be surprised if your estate planning attorney suggests that you have a pour-over will even though you have a living trust. Any assets that you may not have transferred to your trust during your lifetime are transferred to it after your death according to the terms of a pour-over trust. Whether or not you need a will or a pour-over will is a decision best made after obtaining legal advice from your attorney.The cost of a will varies depending upon its complexity, which is usually controlled by the size of your estate and what must be included in the will to accomplish your desired goals for distribution of its assets. As with a living trust, the best way to get an idea of the cost of a will is to speak with arrange for a consultation with a couple of estate planning attorneys.

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