Wills vs. Trusts

When you are first starting out on your estate planning journey the question arises: should I get a will or a trust and why? There is so much confusing and often times erroneous information out there. This Blog will help you make basic distinctions between a Will and a Trust; highlighting the key differences and advantages and disadvantages between them.

What is a Will?

A Will is a basic testamentary document which specifies who is charged with administering your estate’s assets after you die, otherwise known as your Executor; and the Beneficiaries/Successors who are to receive your wealth. A Will can be used to nominate guardians for your minor children, provide for funeral and burial instructions, and exercise powers of appointment. If your estate does not qualify for a Small Estate Administration under the California Probate Code; meaning your collective estate assets are above that statutory threshold, when you pass away your Will is subject to a formal court supervised proceeding known as Probate Administration (“Probate”). During Probate, your assets are inventoried and appraised, creditors will collect on debts, taxes are paid, and your remaining property is publicly administered according to your stated wishes in the Will. A Will has very specific legal requirements and I recommend working with an attorney to draft and sign your Will to ensure that it is legally sufficient. If you die without a Will, the Court handles the administration via an intestate succession, where your property is distributed to your heirs according to California Law. If you don’t have at least a basic Will, California will dictate it for you.

What is a Trust?

A Trust is a legal vehicle that is very flexible. A Trust specifies: (1) who will manage and distribute your assets both during lifetime and thereafter (your Trustee, who can be yourself and/or your spouse during your lifetimes, and Successor Trustees when you pass away); (2) to whom your assets will be distributed (your Beneficiaries); and (3) the manner in which assets are to be held and distributed for the benefit of your beneficiaries. You can put many limiting circumstances for the beneficiaries receipt of assets in the various clauses in your Trust. For instance, you can specify that minors are only to receive assets at a certain age, like at age 25, or according to a distribution schedule or other timeline. Assets can be held in trust for your heirs for even longer than this, even for their whole lifetime.

A Trust goes into effect when you execute it and may provide for distributions during your lifetime; but generally speaking, it becomes irrevocable when you pass away, meaning it cannot be changed after that. Your successor Trustee simply carries on administering the Trust according to your wishes, but without timely and costly court proceedings. So it has the benefit of being privately managed by your successor Trustee; keeping your personal affairs and sensitive information out of the public eye when you’re gone.

There are many different types of trusts, including, Special Needs Trusts, which provides for your beneficiaries who are receiving means-tested public benefits, who would otherwise become disqualified from receiving those benefits if they were to receive even a relatively small inheritance. At Lehmann Law, P.C. we can help you with solutions to all of your estate planning needs, including setting up Special Needs Trusts.

And don’t worry, you can and should also have an accompanying “Pourover Will” to nominate your minor’s guardians and accomplish everything else stated above in accompaniment to your Trust. The primary purpose of the Pourover Will is to pour over any untitled assets into the Trust when you pass on, but the Trust remains your primary testamentary document.

A Trust also has very specific legal rules and regulations it must follow and I highly recommend working with an experienced attorney to draft and sign your Trust.

Key Differences Between Wills and Trusts:

• Wills: Subject to Probate, Publicly Administered, Assets are generally distributed immediately, High Cost* (i.e. for a 1 million dollar estate you should expect your heirs to pay at least $46,000 for Executor and Attorney’s statutory fees, plus additional costs for court filings, appraisals, bonds, and extraordinary fees as authorized by the Court. The assets remain frozen until the end of the Court Proceedings).

 

• Trusts: Probate Avoidance, Privacy Concerns Alleviated, Control over the timing and manner of asset distribution, Special Needs can be addressed, Low Cost of setting up a Trust (only a fraction of what Probate costs), Flexibility in creating the Trust, and the peace of mind knowing that your estate will pass to your heirs in the manner in which you desire it to.

In general, I recommend getting a Trust for most situations, as it is the easiest to administer for your heirs, it avoids costly probate proceedings and the long wait for property to be distributed by backlogged courts. And that’s if everything runs smoothly and no one contests your Will, which can set back the court proceedings for months or even years. As you can see, setting up a Trust is an act of kindness for your loved ones as it takes away the guesswork and hassle of Probate Court. If you have any questions regarding Wills or Trusts and which one is appropriate for you, please contact us at Lehmann Law, P.C. and set up your free 30 minute consultation.