A will and a living trust are both essential parts of your estate planning here in San Diego, CA. There are tools that are designed to allow you to decide what happens with your assets and protect your loved ones after your death. Both are essential, and your estate planning attorney will help you with each. However, these are not the same thing, and it’s important to understand the differences in wills vs trusts as you properly prepare for the future.
From a San Diego, CA Estate Planning Attorney: Wills vs Trusts
Basic Definitions
Major Differences
Timing of Distributions
One of the first significant differences between the living trust and the will is that a will only distribute your assets after your death, and all at once, after probate is finished. With a trust, you can distribute some of your assets before your death if you choose or at intervals after your death according to your wishes.
Management of Assets
A will does not manage assets at all. It only details what should be done with them once you pass away. It does not address anything about how they are cared for in the meantime. A living trust holds your assets and protects them so that they can be distributed at the right time.
Probate
A will must go through probate, and all assets that are controlled solely by the will must go through probate, as well. Probate is a costly and time-consuming process, particularly here in California, and there can be long delays for your beneficiaries. A trust does not go through probate. As soon as you pass away, the successor trustee takes over and begins executing the terms of the trust that you have set up.
Vulnerability
All your assets that go through probate will be valued and estate tax applied. When you combine federal and state taxes here in California, the result can be a ruinously high tax rate. Additionally, all your assets that go through probate are also vulnerable to creditors and to lawsuits that could be brought against the estate. Trusts provide a high measure of protection. Since the assets do not go through probate, they are not considered part of your estate, and thus estate tax does not apply. With a revocable trust, the trust assets may still be used to pay off debts, but with an irrevocable trust, you get even more protection. Talk to your lawyer about the best way to manage setting up a trust and the best trust for your situation.
When It’s Effective
Although you will set the terms for your will, someone else will manage all the assets between the time that you die and the time the estate finally clears probate and distributions can be made to your beneficiaries. With a living trust, you can control all your assets up until the point that you pass away. At that point the trust assets can be immediately distributed.
Notarization and Witnesses
For your will to be valid, it will need to be notarized in most cases, and there have to be witnesses who see you sign it. For your living trust, neither of these is necessary. However, there are many legal hoops to jump through to set up a trust. A will is fairly simple to set up. A living trust will require quite a lot of documentation, and it’s important that everything be done precisely according to the law to avoid complications.
Privacy
A will is in the public record, while a trust is not. All the proceedings of probate are also a matter of public record, as well. If you want to protect the privacy of your family, it’s typically best to put as many assets into a trust as possible.
Guardianship
Another important difference to always bear in mind is that a will allows you to set a guardian for any minor children. You cannot do this with a trust, even if the trust is set up to provide income for your child. If you have minor children, it’s always wise to designate a guardian for them in the unfortunate event that you pass away and the other parent has also passed away or is otherwise unable to care for them.
Incapacity
Another major difference is what happens if you become unexpectedly incapacitated before you pass away. There is no provision for you to change your will in this situation. Should you be incapacitated and a major change take place that would affect the way you want your assets to be distributed, there’s nothing you can do. A trust is different. With a living trust, if you become incapacitated, your successor trustee can smoothly take over. The trustee will manage the assets in the trust on your behalf until such time as you recover, pass away, or as otherwise specified according to the trust requirements.
Ability to Change
So long as you are still of sound mind, you are always free to change your will. You can do this up to the day of your death, if you are able to do so. With trusts, a lot depends on whether you have a revocable or irrevocable trust. A revocable trust can be changed, but it is far more vulnerable than an irrevocable one, and even here, changing it isn’t easy. An irrevocable trust cannot be changed at all once you’ve established it; but it also provides you with much better protection against taxes, creditors, and lawsuits.
Everyone should have a will, and most people should also set up a living trust to protect their assets and the future of their family. For help with either, contact Frisella Neilson, APC in San Diego now to set up an appointment.
