The terms “Will” and “Trust” tend to be confusing to many people but they’re really completely different. It’s also important to make a distinction between different types of trusts that exist. The estate plan that best suits you best often boil down to your individual situation and concerns.
Wills vs Trusts
A Will is a document that lays out your wishes for after you die and it appoints a legal representative to carry out your wishes. All Wills must be in writing, signed by the testator, and witnessed by two witnesses to be valid California.
A living revocable trust becomes effective immediately. While you are alive you can be in full charge of your trust. And when you become incapacitated or die, the person you appoint as the successor trustee can easily step in and handle your affairs exactly as you have laid out in the document.
A Trust can be used to begin distributing property before death, at death, or afterwards. A trust is a legal agreement where a “trustee,” holds legal title to property for another person, called a “beneficiary.”
Types of Living Trusts
Not all trusts are created equal. Each offers different protections. Although there are almost as much varieties of trusts as there are issues you want to handle in your estate plan, each of them falls into three basic categories.
Revocable living trusts are the most common. The grantor-the person that creates the trust and funds his property into it-typically become trustee during his lifetime. He/she can change the conditions of the trust, undo them, and move property into and out of the trust any time. Even within the Revocable living Trust category, there are many different types of trust to properly plan for taxes, blended families, separate properties, re-marriages, liabilities, special needs persons, etc… It is quite important to consult with a qualified Estate Planning attorney to property setup your living Trust the way best suited for your situation.
Irrevocable living trusts are fixed forever. The grantor-the person that creates the trust gives away his asset forever. You place that property in to the care and control of another person you’ve named as trustee. You can’t take it back. You can’t “undo” the trust.
Irrevocable trusts involve some tax or Medicaid benefits, therefore might be good for high net worth individuals.
Finally, testamentary trusts are manufactured by the testator-the person that writes a will-in the conditions of her will. They’re not “living” trusts. They don’t really exist before death of the testator. The executor of her estate would create the trust within the probate process.
An experienced lawyer would be able to help you decide which type of trust best fit your needs.
When Wills and Trusts Take Effect?
A Will goes into effect following the death of the testator.
A Trust goes into effect when it’s signed.
You can change your Will or your revocable living Trust up until your death, so long as you remain mentally competent.
What assets do Wills and Trust govern?
A Will governs the disposition of properties owned in your sole name at your death. It does not govern assets that pass directly to a beneficiary by contract or by procedure of law such as life insurance policies or joint tenancies with rights of survivorship.
A Trust governs the disposition of properties that has been transferred into the Trust. The grantor usually transfers his/her assets into the Trust after it’s formed. These assets can be real estates, bank accounts, retirement accounts, life insurance,… and ranges from changing the title or changing the beneficiary to be the Trust.
Do my family need to go through Probate court after I die?
If you only have a Will, when you die your family may have to go through a lengthy probate court process. In addition to being time-consuming and costly, the probate process is also public, meaning everyone can see details of your case.
A living revocable Trust does not need to go through the probate court. Everything stays private, and your successor trustee can take over its management immediately upon your death.
The bottom line:
Trusts provide a lot more benefits and is a far more versatile instrument to help your plan for life and death. It helps your family avoid the probate court completely. Without a proper Trust, your family can easily spend 1 to 2 years sorting out your estate, and can easily lose 2 to 5 percent of your estate due to legal professional fees and court costs.
