Will I or Won't I Want a Trust? Wills vs. Trusts in Plain English
Everyone has heard of wills and trusts. Most articles written on these topics, however, often presume that everyone knows the basics of these important documents. But, in reality, many of us don’t – and with good reason – as they’re rooted in centuries-old law. So if you’re “fuzzy” about wills and trusts, know that you are not alone.
Wills vs. Trusts: Defined
Let’s take a minute and define both “will” and “trust”:
Will.
A will is a written document that is signed and witnessed. A will only goes into effect when you die - it has no power during your lifetime.
A will:
provides for the distribution of most assets owned by you, except assets directed to others through beneficiary designations (like life insurance or retirement benefits)
distributes your assets to your heirs using the court-directed probate process
allows you to nominate permanent guardians for your minor children
allows you to name the person or people you wish to settle your estate on your behalf (e.g. executor or personal representative)
permits you to revoke or amend your instructions during your lifetime
tends to cost less than a trust to prepare, but subjects your estate to substantial court-ordered probate administration fees after your death.
Trust.
A trust is a legal document that is effective during your lifetime, during any period of disability, and after death. Because a revocable trust is effective during your lifetime and you can change it, it’s often referred to as a "living" trust.
A trust:
allows for the management of your property during your lifetime if needed due to incapacity
distributes your assets to your beneficiaries privately, without any court involvement, avoiding probate entirely if fully funded
allows you to nominate permanent guardians for your minor children
allows for creation of protective trusts for beneficiaries and tax planning
permits you to revoke or amend your instructions during your lifetime
allows you to name the person or people you wish to settle your estate on your behalf (e.g. successor trustee)
costs more than a simple will to prepare but typically provides significantly more value through avoidance of probate fees and delays, as well as increased functionality
The Probate Process: A Key Element in Deciding Between a Will and Trust
The key element in deciding between a will and a trust is understanding the probate process. The term “probate” – which literally means “proving” – refers to the court process for authenticating a will, supervising payment of outstanding debts, and transferring assets to the beneficiaries named in the will.
The probate process is administered in the county court system, making each probate proceeding expensive, time-consuming, and open to the public. In California, state-mandated probate executor and attorney fees will reach at least 4% of most estates. In addition, a typical probate will take several months to complete, often more than a year, and the entire process is completely public, meaning your nosey neighbor Nancy and evil predator Paul both know exactly who got what and how to contact them. In virtually all cases, the only upside of probate is that creditor claims are cut off.
Probate Guaranteed. If you use a will as your primary estate planning tool, you own property in your individual name, or property is made payable to your estate, probate is guaranteed.
Probate Avoided. If you use a trust as your estate planning tool, probate is avoided - saving your family time and money.
The Bottom Line on Wills vs. Trusts
HOW TO DECIDE: As everyone’s situation is different, it’s important to analyze your present and likely future situation to determine what’s right for you. If probate avoidance, incapacity planning, and trust protections have value to you and those you love, it's likely that a trust may have the greatest overall benefit for you.