Estate planning comes with many questions. Many people use the terms “trust”, “will”, “trustee”, “executor”, and “administrator” interchangeably. However, not everyone knows the differences between all of these terms. These are all useful estate planning terms that all serve different purposes. A common question that I hear is “what is the difference between a trust and a will?” Another way that people ask that question is “shouldn’t I just have a will?”
The answer is that a trust and a will are both useful estate planning devices and it is very common for the two of them to be used together to create a complete estate plan. Very commonly, in the state of California, a person will create a trust to avoid probate and then create what is known as a pour-over will. These two documents will cover most situations.
A will is a document that only goes into effect after a person dies. A trust goes into effect as soon as it is created, which is why you may have heard the term “living” trust. A will only distributes your assets and property at death and appoints an executor to carry out your wishes after your death. A trust can be used to make distributions before your death, at the death of only one of the two spouses, or at death. A trust is an agreement created by a “settlor” (also called trustor or grantor) so that a “trustee” (a person who is going to hold legal title to property) can hold legal title to the property and assets that are held in the trust for a benefit of other people (called the “beneficiaries”). Trusts can also provide for what would happen if someone were to become incapacitated.
A will covers property that is in your name as an individual when you die. It does not cover any property held in the trust, or in another form such as joint tenancy. A trust, in comparison, covers only property that has been transferred into the trust. Trust funding (putting the property into the name of the trust) becomes crucial to ensure that the property can be included in the trust.
A will passes assets by going through probate. Probate is when the Court oversees the administration of the will and makes sure that the will is valid and the assets get distributed in accordance with the deceased person’s wishes. A trust and all assets held in the trust pass without having the Court oversee the process. Probate can be very costly and time consuming. Trusts remain private, whereas a will becomes part of the public record.
Despite the differences between wills and trusts, the reason why it is common to have both in a complete estate plan is so that your larger assets can be held by the trust, but the will can act as a safety net in case something goes awry. Additionally, having a will allows you to name a guardian for your children and to specify funeral arrangements, while a trust does not.
Each family has a unique set of needs and should discuss their own personal situation to determine what should be involved in their estate plan. A thorough discussion will include your assets, your wishes, and who you want to designate to handle your affairs. A reputable estate planning attorney will tell you how best to use a will and a trust in your estate plan.
If you have further questions or need assistance in any way click here to contact us.