Why is Having a Trust (and a Will) Better Than Just Having a Will?

Why is Having a Trust (and a Will) Better Than Just Having a Will?

The most common reasons people choose to have a Trust are:
(1) to keep your assets and your net worth confidential;
(2) to maintain control over who receives your assets, how they can use them, and when they get them after your death;
(3) to keep your assets and their distribution out of a court-supervised probate process that can take years; and
(4) to avoid the costs associated with the public Probate Court process.

A Will is a document that publicly tells the Probate Court who should receive your property after your death and it appoints a personal representative (called an Executor) to carry out your wishes. A Will is a legally enforceable document stating how you want your affairs handled and assets distributed after you die. It is an important component of estate planning.

After you die, your Executor will file a Petition to start the probate process and lodge your Will in the Probate Court. After your Will is lodged, it becomes public and is available to everyone who might be interested. During the probate process, your Executor will also file a document called the Inventory and Appraisal which lists everything that you owned at the time of your death, and how much each item is worth. As a result, information regarding the assets you owned, the value of each asset, and who gets how much becomes part of the Court’s public record. With delays in Probate Court as a result of funding cuts, distributing assets by a Will can take more than a year after your death. In addition to the length of time, probating a Will is expensive. Your estate will have to pay court related fees and your Executor and your Executor’s attorney will each be entitled to statutory Executor’s fees and attorney’s fees. (See our article on How Much Money Will I Get Paid as an Executor of an Estate in Probate Court in California?)

By contrast, a Trust can be used to confidentially distribute your property before your death, upon your death, or many years after your death, as you direct. You will still need to have a Will that acts as a backup to your Trust, in case you fail to hold an asset in Trust at the time of your death or in case your Trust fails for any reason.

There are significant advantages to having a Trust over just merely having a Will. A few of the advantages to having a Trust is that it allows you to put conditions on how and when your assets are distributed after you die. In some cases, you can reduce estate and gift taxes and distribute assets to heirs efficiently.

The most common reasons people choose to have a Trust are (1) to keep your assets and your net worth confidential; (2) to maintain control over who receives your assets, how they can use them, and when they get them after your death; (3) to keep your assets and their distribution out of a court-supervised probate process that can take years; and (4) to avoid the costs associated with the public Probate Court process.

While there are many types of Trusts, the most common Trust is the revocable living Trust. A revocable living Trust can be amended or changed by the person who creates the Trust. The person who creates a Trust is called the Settlor or the Trustor or the Grantor. A revocable living Trust will usually avoid the lengthy probate process, Executor’s fees, and Attorney’s fees that the probate administration of a Will requires. This is because the assets in the revocable living Trust are held by the Settlor as Trustee of the Trust. A carefully drafted Trust will provide for one or more Successor Trustees who will replace the Settlor upon the Settlor’s death.

During the life of the Settlor, usually the Trust assets and all other benefits of the Trust assets (like living in the home, or income earned from Trust assets) go to the Settlor. After the death of the Settlor, the Successor Trustee administers the Trust, pays the debts of the decedent, and distributes the assets in the Trust according to the terms of the Trust and the California Probate Code. This Trust administration process usually does not require going to court or having court supervision.

Once a Trust is created and signed by the Settlor, the Settlor must then “fund” the Trust. The Settlor must hold title to their assets “Trustee of the ‘SETTLOR’S NAME’ Trust.” Funding the Trust involves transferring assets and placing them in the Trust’s name. This will ensure that the Settlor’s properties are administered by the terms of the Trust agreement. This will also allow the Successor Trustee to manage accounts held in the name of the Trust in the event that the Settlor becomes mentally incapacitated. After the Settlor’s death, the Successor Trustee will be able to manage the Trust accounts and Trust property according to the terms of the Trust agreement, and ultimately distribute the assets of the Trust to the named Beneficiaries

As a precaution, even though a Settlor creates a revocable living Trust to hold their assets, they also usually also create a “pour-over Will” to take any remaining assets in the Settlor’s name at the time of death and “pour them over” into the Trust, to be handled and distributed according to the terms and conditions of the Trust.

For all of these reasons (confidentiality, control, and cost and speed of administration), it is usually best to have both a Trust and a pour-over Will when completing your estate plan.

The views expressed in this article do not contain legal advice, may not current and is subject to change without notice. The information contained herein is provided for general information and educational purposes only and is not a substitute for professional advice. Should you need legal advice, contact Simon Law directly and request to speak to an attorney regarding your case.