By now, most people have at least heard the word “trust” in conjunction with estate planning. However, many people do not fully understand the role a trust can play and why it may be a critical document to have.
The Difference Between a Trust and a Will
In many cases, the confusion relates to how a trust differs from a will and why many estate planning attorneys recommend that you have both a will and a trust.
- A will disposes of your property when you die.
- A trust does the same thing and in fact, many estate planning professionals call a trust a “will substitute.”
Advantages of a Trust Over a Will
The answer relates to two primary advantages a trust has over a will. Yes, a trust disposes of your property when you die just like a will. However, a will only becomes effective when you die. Its primary function is to contain the dispositive provisions regarding the distribution of your assets at death.
A trust, on the other hand, is effective immediately. That is, from the date you sign the trust, it can hold title to your assets. This process is called funding. As a result, in the event of your incapacity during lifetime, the successor trustee (the person or financial institution you have named to serve on your behalf in the trust in the event you no longer desire to or are able to serve on your own) can act on your behalf to manage the assets held in the trust.
Many planners call this the “management assistance” advantage to having a trust in place. Because a will is only effective at death, this benefit does not exist with a will. With a trust, however, there is a mechanism in place that will offer assistance upon your incapacity during lifetime.
The second advantage of a trust and what most people consider the main advantage, is that any assets held in the name of a trust at death are not considered to be “probate assets.” That is, there is no probate required to transfer title to your beneficiaries if they are in the name of your trust when you die. A probate proceeding is a court process whereby a probate judge oversees the handling of your final affairs. Probate is a public proceeding and in some instances may be costly and delay the distribution of your assets to your loved ones. Again, this advantage is not available with a will. A will covers assets held in your name alone when you die. These types of assets must go through a probate proceeding.
In California, there is also something called a “small estate.” This is where the assets of a person’s estate is less than $100,000. If a person’s estate falls under that category they do not have to probate the will.
Another advantage of a trust is usually for people who have minor children. Under a will all assets passed to a minor child must go to that child. Of course, it will usually be under control of a parent. This can cause a lot of problems for divorced couples, especially if the spouses don’t trust one another. Basically, this could mean that when one spouse dies and only has a will leaving everything to the minor child/children, the surviving spouse will actually control those assets and could very easily use them for their own benefit. Granted the child/children could eventually sue the parent for those assets, but realistically what are the chances of that happening? Hence, it is better to protect those assets, put them in a trust and select a trustee you can trust.
Do I Need Both a Trust and a Will?
Because of the two advantages of management assistance and probate avoidance, many people are well served to have a trust document be a part of their basic estate planning documents. It is a very common occurrence for someone to die without funding all of his/her assets in the name of the trust and thus, a will is necessary to deal with the distribution of those assets that may be held in your individual name at death. This is called a “pour over” will.
Please feel free to call The Law Office of Mark A. Reed to discuss in detail your needs. 858-277-0232.