A Will or a Trust: Which One is Right for You?

When working on your estate plan, you will have lots of different options available for how you plan the future of your estate. There are two types of estate plans: Will-based plans and Trust-based plans. Will based plans include a Durable Power of Attorney, Advance Health Care Directive and a Will. Trust based plans include a Durable Power of Attorney, Advance Health Care Directive, Will, Trust and Trust funding documents. It’s important to understand that in a Trust based plan we do the Trust in addition to the Will, not instead of it. Understanding what each option is, and which is right for you, is important for ensuring your estate is handled appropriately when the time comes. Making the right choice now may even have an impact on how your assets are treated today.

What is a Will?

Assets in your name pass according to your Will, if you have one, and if not, by California law. A Will, or Last Will and Testament, is a legal document where you list what you want to happen to assets in your name when you pass away and you nominate a person to handle that for you, called “Executor.” Executors “execute” your wishes and sign for you. Their three major jobs are: (1) collect assets and appraise them; (2) pay off debts; and (3) distribute the leftovers to the people named in the Will (called “beneficiaries”). Wills only become active at the moment of your death, and really only apply until your estate is settled. “Probate” is the court case where the government, through the court, supervises the Executor while they do their job. In California, the court has power to supervise your estate if the fair market value of your property is large enough ($163,000 in 2019). This is true whether you have a Will or not. Preparing a Will does not make your estate avoid probate, it just nominates an Executor and declares who your beneficiaries are. A Will is also a good option for nominating guardians to take custody of any minor children should you die. Probate: (1) takes a long time, often more than a year; (2) is expensive, around 5% of the estate value; (3) is a major hassle for the family; (4) is a public proceeding; and (5) forces the Executor to write checks at the end, so there is no real long term oversight of money for beneficiaries who are having problems or are too young. To avoid probate, you have to use a Trust.

What is a Trust?

A Trust is the only alternative to a Will. A Trust is an agreement between two people to hold property for the benefit of a third. By writing a trust, you are telling the government “I don’t need the court to supervise my estate because I have someone I trust (called “Trustee”) to handle that for me. By transferring your assets to your Trust, you get them out of your name so after you die, the court looks at you and sees that you have less than $163,000 in your name (because it is in your Trust) so no need for full probate and court supervision of your estate. The Trustee still does the three jobs (1) collect assets and appraise them; (2) pay off debts; and (3) distribute the leftovers to the people named in the Trust (called “beneficiaries”). But, the Trustee does their job outside of court supervision (called “Trust Administration”). Trust Administration is better than probate because: (1) it’s faster because there are no court delays; (2) it’s less expensive, around 1%-2% of trust value; (3) is less hassle for the family; (4) is private; and (5) the Trustee can be instructed to hold funds for young beneficiaries, special needs or substance abuser beneficiaries until they are old enough or well enough to take distribution.  Trusts help streamline the process and make it easier for your loved ones.

Which is Right for You?

Determining whether you need a Will based plan, or a Trust based plan is an important decision. Both are important estate planning programs that can provide you and your loved ones with tremendous peace of mind that your affairs will be handled as simply and efficiently as possible with the least amount of cost and stress to your family. The best way to determine whether you need a Will based plan or Trust based plan is to talk to one of our estate planning partners who will help you understand the basics of estate planning and provide practical advice. Contact Lawvex to learn about our three estate planning programs: Plan By Design; Family Wealth Planning; and Family Foundations Planning; and schedule a consultation with one of our partners who can help you with all your estate planning needs.