Certainly everyone is familiar with the estate planning terms “will” and “trust,” but not everyone understands the differences between the two estate planning tools. Wills and living trusts are both useful estate planning instruments that serve very different purposes. Despite their dissimilarities, both can work together to create a comprehensive estate plan. Just ask our Sacramento probate attorney how it works.
Wills and living trusts are needed for estate planning
Regardless of how old you are and how much money you may have, it is important to prepare yourself and your family for the chance that you may become incapacitated. You must also prepare for your inevitable death. Estate planning is the way to accomplish that. Wills and living trusts are just two of the basic tools that can be used in your estate plan. Your estate plan needs to be customized to fit your unique goals and the future desires you have for your family. We can help you find the right fit.
Why planning ahead is important
Planning ahead is very important for several reasons. First, having a plan gives you a way to decide who you want to inherit your property when you die. You get to make that decision now. Second, through wills and living trusts and other estate planning tools you have the chance to reduce estate taxes and probate fees as much as you can. Finally, in the event you ever become debilitated in some way, even if it is only temporary, your estate plan can provide a way for your family to take over managing your financial and medical matters, if necessary.
What is a last will and testament?
A last will and testament is basically a written legal document that describes to those who survive you exactly how you want your estate to be distributed at your death. Wills are very useful estate planning tools because they can be revised or revoked at any time before your death or before you become incapacitated.
What is a living trust?
Two of the major goals of a trust are to reduce estate taxes and to avoid probate, if possible. A living trust is basically a fiduciary agreement. That means it is grounded in confidence and trust. The agreement is between three parties: the trustee and the grantor, or creator, of the trust. A living trust agreement essentially authorizes the trustee to hold and manage the assets in your trust for the benefit of your named beneficiaries. The trust agreement will also provide detailed instructions regarding how to manage and distribute your trust property.
When do they become effective?
One main difference between a will and a living trust is that a will goes into effect only after your death. A living trust, on the other hand, takes effect as soon as you create it, unless you specify otherwise. However, there are some trusts that go into effect when you die that are called testamentary trusts. While the will directs who will receive your property at your death, a living trust can be drafted to begin distributing property before death, at death or afterwards – whichever you choose.
The beneficiaries are different
With a will, you can name essentially as many beneficiaries as you like, or you can have just one. With a trust, there are generally two types of beneficiaries: the ones that receive the income from the trust during their lifetime, commonly called income beneficiaries, and those that receive the remaining assets after the first beneficiaries pass away, commonly called remainder beneficiaries or residual beneficiaries.
What property does it control?
A will can basically control any property that is only in your name when you die, but it only controls the property that you specify. It does not cover any property that is held in joint tenancy or in a trust. A living trust, on the other hand, covers only property that has been transferred to the trust. In order for particular assets to be included in a trust, it must be retitled in the name of the trust.
Living trusts avoid probate but wills do not
Another difference between wills and living trusts is that a will must go through probate while a properly constructed and funded living trust does not. That means a court oversees the administration of the will and confirms that the will is valid. The court also makes sure the property gets distributed according to the wishes of the deceased. Trust property is transferred outside of probate, so the court is not required to oversee the process. Therefore, living trusts can save time and money.
Wills and living trusts have their own advantages and disadvantages
Both wills and living trusts have their own pros and cons, depending on the needs of the client. A will gives you a way to name a guardian for your minor children, but a trust does not. However, in a well constructed trust-based plan, a special type of will is included that can name a guardian. A living trust can be used to plan for disability and provide savings on taxes. If you have questions about the pros and cons of these two estate planning tools, we can help.
Download our FREE estate planning checklist! If you have questions regarding wills trusts or any other estate planning matters, please contact the experienced attorneys at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!
Latest posts by Timothy P. Murphy (see all)
- How Does a Veteran Qualify for Aid and Attendance? - June 14, 2019
- What Is a Reverse Mortgage? - June 12, 2019
- Tips for Choosing Fiduciary Roles in Your Estate Plan - June 10, 2019