Will v. Trust: What is the Difference?

One of the most common questions people have is “What is the difference between a will and a trust?”. There are multiple differences between a Will and a Trust. In California, the major differences include: (1) probate avoidance, (2) cost and time, (3) privacy and (4) design options.

Probate Avoidance

Whether you have a will, a trust, or nothing at all determines how your estate will be administered after you pass away. After you pass away, your life has to be closed up, so to speak, almost like closing a business. Debts will be paid or negotiated. Assets will be inventoried. Final taxes will be prepared and filed. Finally, remaining assets will be distributed to heirs. This is the administration process.

The type of estate plan you have (or don’t have) will determine in what venue this administration will take place. If you have no will and no trust, your administration will take place in probate court.* A judge will oversee the administration process which starts by appointing a person to represent the estate through administration. The order of priority for who can be the representative is determined by the California Probate Code. Additionally, at the end of probate, your assets will be distributed to the heirs as stated in the California Probate Code.

If you have a Will, your administration will take place in probate court.* The major difference at this level is that with a will, you appoint the individual who will represent your estate in court and you designate the individual(s) and/or charities who will receive your assets.

If you have a living trust, your administration will take place privately and outside of court. You will designate an individual (the “trustee”) who will run the administration. You will designate the individual(s) and/or charities who will receive your assets.

Cost/Time

Administration of an estate takes time. Administration in a probate court, especially in Los Angeles County, California, can take at least 2-3 years. That is without anyone objecting and litigating the administration. This can also be more costly than trust administration in many cases. The appointed estate representative will be entitled to a percentage of the estate. Any attorney for the appointed estate representative will also be entitled to a percentage of the estate. There are also filing fees, appraisal fees, and other court-related expenses.

A Trust Administration can take less time largely because the administration is not waiting on the schedule of the court. It can be less costly. The Trustee can opt not to take fees and/or the fees might be less. An attorney may not be involved. If an attorney is involved, the fees might not be as high overall. You also do not have court filing fees and other court-related costs.

Privacy

Put simply, probate court files are public record. Anyone can access the files for little to no cost. Trust administration does not take place in a courtroom so there is no public record of the administration.

Design Options

If you have no will and no trust, you have the least amount of control over how your estate administration occurs and who will receive your assets. Those decisions and options will be governed by the California Probate Code. If you have a Will, you have the ability to choose who will administer your estate and who will receive your assets. If you have a Trust, you have the ability to choose who will administer your Trust and its assets not only after you pass away, but also should you develop an incapacity during your lifetime. You also have the ability to decide who will receive your assets. With a Trust you can determine when those individual(s) and/or charity(ies) will receive your assets and how they will receive them. For example, some parents prefer that their children not receive everything right away should the parents pass away when the children are young adults. With a trust, the parents could state that the children would receive half of the assets at 25 years old and the remainder of the assets would be managed in trust until the children reach 35 years of age.

* There are some exceptions to this based on specific circumstances. Do not operate on these exceptions.

Nothing in this article should be construed as legal advice. For specific guidance regarding your situation, please contact an attorney.

Is Estate Planning?

Estate planning is the process of organizing an individual’s personal and financial affairs in a way that maximizes the individual’s enjoyment of his or her own estate during life while planning how that estate should be distributed and used upon that individual’s death. Additionally, estate planning is used to ensure that your final property and healthcare wishes are honored, and that you and your loved ones are taken care of when you are no longer able to care for them or yourself. Based on your assets and goals, estate planning can involve financial, tax, medical, and business planning as well.

How Can Estate Planning Help You?

Estate planning can help you by providing for the distribution of your business, home, and personal property upon your death. For example, your estate plan may involve deciding how you want to use and manage your business, investments, real property (such as a home) and personal property (such as family heirlooms, jewelry, cars, etc.) during your life, and what happens to these items upon your death. You can decide whether you want to give your property to a certain family member, or friend or if you want to divide your estate equally among certain individuals or pass entirely to charity. Moreover, estate planning allows you to plan for your own care, or the care of a minor child, if you become unable to care for yourself. This is often seen where someone is in a coma or develops cognitive impairment such as dementia. Along with other issues, you can leave detailed instructions on if and when life support should be used to keep you alive and whether or not you would like to be an organ donor.  With your estate plan, you can also appoint a specific person to replace you as the primary caregiver for your minor child, i.e., nominate a guardian for your minor children in the event you lack legal capacity to care for them or if you pass away when your children are minors. Without nominating a guardian, if you (and your spouse, where applicable) pass away while your children are minors, someone must petition the court to become a guardian of your children. It may not be the person you would want to be the guardian. 
Nothing in this article should be construed as legal advice. For specific guidance regarding your situation, please contact an attorney.
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