What Is the Difference Between a Will and a Trust in California?

In California, several planning tools are available to you when drafting your estate plan. Two primary options are a will and a living trust.  Understanding the difference between a will and a living trust in California can help you decide which option best suits you.

Wills and trusts are invaluable estate planning tools; however, they differ in their activation, their probate requirements, enabling of guardianship for minors, and asset delivery to beneficiaries. 

Trust vs. Will: Key Differences

Wills Trusts
  • Active only after death and does not allow for asset    management if incapacitated while alive
  • Assets must go through the legal process of probate
  • Enables naming of a guardian for minor children
  • Asset distribution becomes part of public record

 

  • Active while a trustor is alive and at any point a trustor becomes incapacitated
  • A trust avoids probate
  • A trust does not allow you to name a guardian
  • A trust allows you to actively manage (control) your delivery of assets to beneficiaries
  • A trustor appoints a trustee to hold title to property or assets for the benefit of a third party
  • Asset distribution remains a private document

ESTATE PLANNING WITH A WILL

What is a Will?

A will is the most well-known form of an estate planning tool, and the most common type of will is called a testamentary will. This legal document is essentially an estate plan that leaves your instructions as the testators regarding how your affairs after death shall be handled, including burial and funeral wishes. It also details how your assets will be distributed and whom you wish to care for any minor children.

Typically, all assets included in a will go through probate under California’s probate code. During probate, the Californian court process validates the will and settles any final debts before giving ownership of assets to beneficiaries.

What is Probate?

In probate cases with a will, an executor is appointed as a personal representative to collect the decedent’s assets then settles any final debts or expenses before distributing assets to beneficiaries. The probate process is completed under the supervision of the court through California Law which times average between nine to eighteen months to complete.

Be aware that life insurance policies and retirement accounts pass straight to named beneficiaries on the policies, not necessarily those named on the will, and do not go through probate. Probate can often be more expensive than setting up an estate plan.

When hiring a lawyer for probate court the cost must be taken into consideration. Unlike in most states, California allows law firms and probate lawyers to charge a “statutory fee”—determined by the value percentage of the assets in probate. Article 2 of 10810 states:  (a) Subject to the provisions of this part, for ordinary services the attorney for the personal representative shall receive compensation based on the value of the estate accounted for by the personal representative, as follows:

  • Four percent on the first one hundred thousand dollars ($100,000).
  • Three percent on the next one hundred thousand dollars ($100,000).
  • Two percent on the next eight hundred thousand dollars ($800,000).
  • One percent on the next nine million dollars ($9,000,000).
  • One-half of 1 percent on the next fifteen million dollars ($15,000,000).
  • For all amounts above twenty-five million dollars ($25,000,000), a reasonable amount to be determined by the court.

In California, there are circumstances where probate is not necessary. For example, if the deceased shared assets in joint tenancy, or entered in a survivorship community property with the surviving spouse, or if assets are defined in a living trust.

Why would someone need a will?

There are various reasons you should create a last will and testament. The main intention for wills is that you can avoid leaving important personal decisions up to your loved ones, a local court, and your state’s laws.

Below are several common reasons why someone would need a will:

  1. To choose guardianship for minor children.

    One of the most important reasons to have a will is to provide your child guardianship if you or your spouse die. If you do not nominate a guardian in a will, the court appoints one for you, and it may not be whom you would have chosen to raise your kids.

  2. To determine who manages the estate.

    As a testator, you have the opportunity to nominate an executor who will essentially manage your affairs. Your executor may be responsible for closing bank accounts and liquidating assets, as such, you want to make sure it is someone you trust.

  3. To decide on the named beneficiaries of your assets.

    Most people know a will allows you to choose who gets your property. As the testator, you can name beneficiaries of specific assets and property.

  4. To choose to disinherit children.

    In California, you have the legal right to disinherit children from your will, ensuring that they do not receive anything. However, as California is a community property state, your surviving spouse has a legal right to half of the estate assets acquired during the marriage and may also be entitled to support the decedent’s children.

  5. To provide a home for your pets.

    Ensure your pets are well looked after once they are gone, leaving them to a trusted friend or family member and even leaving funds for their care.

  6. Leave digital assets instructions.

    Digital assets include social media accounts or digital property like websites and folders. You can leave people with instructions on how these are to be handled.

  7. Provide funeral arrangements and instructions.

    This can either be a challenging or empowering part of drafting your will. Making these decisions in writing lessens the burden on your family and friends after you pass.

  8. Support your favorite causes or charity.

    This is a common component of will drafting, and you can leave some form of a donation to a cause or charity that you support.

Are wills worth it?

Many assume that their loved ones will automatically get an inheritance – but this is not always true. This can be the case when a there are less assets than obligations for legal fees and creditors. Typically beneficiaries only get paid once legal fees, taxes, funeral, and medical expenses have been paid. A will ensures the probate process is not any longer nor expensive for your heirs. Putting off creating or updating your will can be burdensome on your loved ones.

There are some minor drawbacks to wills, such as your assets becoming public record after your death through the probate process. Also, probate itself can be expensive and lengthy, even with California’s statutory fee.

However, the peace of mind you get from having a will and knowing that you will continue to support your loved ones after your passing makes it essential to have one.

Now it’s simple to make a will through online tools. With InstantFamilyTrust you can create your own will using our simple, online self-help tools designed by attorneys.

ESTATE PLANNING WITH A TRUST

What is a Trust?

A trust is another standard method of estate planning and transfer. Essentially a trust enables a party, called a trustee, authority to handle assets on a person’s behalf in case of death or incapacitation. The individual who creates the trust is known as the grantor and passes the assets to the trustee.

One of the most common types of trusts is a living trust. A living trust is so named as the trustor is alive at its creation and immediate activation. It acts similarly to a will transferring ownership of the permitted assets to loved ones. A living trust is revocable, meaning the trustor can alter it at any point during their life, and the trustor maintains their ownership of the property detailed in the trust while they are alive.

Why do you need to create trust?

There are various reasons people create trusts in California. The two main reasons are to minimize estate taxes and to avoid probate after passing. These reasons and more are listed in detail below:

  1. Minimize federal and state estate tax.   This is a major incentive for people to enter into trusts. Be aware that even if you don’t currently pay estate taxes (federal or state), there is no guarantee you won’t have to in the future. The same may also be true if you own real estate locally and across states.

  2. Avoiding probate.  Funding your trust during your lifetime means your family does not have to go to court to validate asset ownership after death. Avoiding the probate process can save time and money.

  3. Peace of mind if incapacitated. If you fall ill or suffer diminished mental incompetency, a successor trustee can access money on your behalf. For example, if you suffer a stroke or dementia, a trustee can pay any medical and real estate bills during your time in the hospital without a supervised conservatorship
  4. Limiting minor children’s access to their inheritance. This ensures that a trustee, in your absence, oversees your minor children’s inheritance until they can manage the monies themselves.
  5. Protecting beneficiaries. Some beneficiaries may not be financially competent, such as beneficiaries struggling with addiction. Some people elect to pay their life insurance or retirement account into a trust which limits the beneficiaries ability to make irresponsible choices.
  6. Divorce. You could prevent a divorcing spouse from obtaining all or a portion of beneficiary assets in a settlement.
  7. Limiting assets to a surviving spouse. Trusts can prevent scenarios where the spouse may use the money outside its intended use.

Are trusts worth it?

Trusts are flexible, varied, and complex. Trusts are certainly a valuable estate planning tool for many individuals. They help minimize estate taxes and protect your estate from creditors or lawsuits. With InstantFamilyTrust you can create your own will and trust using our simple, online self-help tool.

Is it possible to have a will and a trust?

Yes, it is possible to have both a trust and a will; we highly recommend it. While a living trust essentially serves the same purpose as a will, there are features of a will that a trust cannot accomplish, such as grant guardianship of minors. Also, a trust never includes everything you own. For the ultimate peace of mind it is best to create both a will and a trust.

Will vs. Living Trust in California

Both a will and a trust have benefits and certain aspects each lacks on their own. Regardless, you must have some form of estate planning. We are not in control over catastrophes or emergencies that we face in our lives, and the Covid crisis has demonstrated that on a large scale. Still, you can be in control of how your loved ones are looked after in the future by the financial and medical decisions you make today.  The best thing is to start the process for free and we will answer any questions that come up along the way at InstantFamilyTrust.

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