While you might be quite familiar with wills and trusts, you may not be so familiar with the actual differences between these two common estate planning tools. Wills and trusts serve very different purposes when it comes to estate planning. Nevertheless, despite their differences both can work together to establish a comprehensive estate plan.
Wills and trusts are great strategies for estate planning
Regardless of age or the size of your potential estate, it is important to be prepared and to prepare your family for the possibility that you may become incapacitated. Of course, you must also prepare for your death as well. Estate planning is the way to accomplish goals and wills and trusts are just two of the basic strategies that can be used. Your estate plan should be customized to meet your specific goals and the wishes you have for your family’s future. Our firm can help with that customization.
Why planning ahead is crucial
Planning ahead is important for many reasons. First, planning ahead gives you a way to determine who you want to inherit your property when you pass away. You have the chance to make that decision now. Second, you have the opportunity to reduce estate taxes and probate fees as much as possible through wills, trusts and other estate planning tools. Finally, if you ever become incapacitated in some way, even if only temporarily, your estate plan can provide a way for your family to take over managing your financial and medical matters if that is required.
How does the last will and testament work?
The last will and testament is essentially a written legal document that explains to those who survive you precisely how you want your estate to be distributed upon your death. Wills are quite useful in estate planning because they can be modified or revoked at any point before your death or before you become incapacitated.
How does a trust work?
Three of the primary functions of a trust are to reduce or minimize estate taxes, to avoid conservatorships and to avoid probate, whenever possible. A trust is essentially a fiduciary agreement, which means it is based on confidence and trust. A trust agreement is between two individuals: the trustee and the trustor, or creator, of the trust. A trust agreement basically gives the trustee the authority to hold and manage the trust assets on behalf of your named beneficiaries. The trust agreement will also provide detailed instructions about how you want the trust property to be managed and distributed.
When do these estate planning tools become effective?
One difference between a will and a trust is that your will goes into effect only after your death. However, an inter vivos (or living) trust takes effect as soon as it has been created, unless you specify otherwise. While a will establishes who will receive your property after your death, a trust can be drafted to manage your affairs while you are still alive and to begin distributing property before death, at death or afterward – depending on your goals. Discuss your needs with an experienced and qualified estate planning attorney to determine the best option.
The beneficiaries of wills and trusts are somewhat different
A will allows you to name as many beneficiaries as you choose. You can also have only one beneficiary if that is your choice. With a trust, there are often two types of beneficiaries — the ones who receive the income from the trust during their lifetime (lifetime beneficiaries) and the ones who receive the remaining assets after the first beneficiaries pass away (remainder or residual beneficiaries).
Trusts can help you avoid probate and conservatorships but wills cannot
Another important distinction between wills and trusts is that in most cases a will must go through the probate process while a trust does not. That means a court will oversee the administration of the will and confirm that the will is valid. The court will also make sure the property is distributed based on the wishes of the deceased. In California, probate proceedings are typically expensive, burdensome and time consuming. Trust property, on the other hand, is transferred outside of probate so the court is not required to get involved. For that reason, trusts often save time and money. Since a will does not take effect until your death, it is not of use if you become incapacitated. A trust, however, can become effective upon its creation allowing its provisions to apply not only at death, but also if you become incapacitated.
Wills and trusts have different advantages and disadvantages
Experienced and qualified estate planning attorneys have the experience to understand the differences between these two estate planning tools. Both wills and trusts have their own advantages and disadvantages, depending on the needs of each client. A will provides a way to nominate a guardian for your minor children, but a trust does not. On the other hand, a trust can be used to plan for disability and provide savings on taxes. Combining wills and trusts in
If you have questions regarding wills and trusts, or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.
Latest posts by Timothy P. Murphy (see all)
- 529 Plans: Planning for Education with a Tax and Asset Protection Bonus - September 17, 2019
- What Is a Spendthrift Trust? - September 15, 2019
- What Can I Do to Prevent My Beneficiaries from Contesting My Will? - September 13, 2019