Although most people will agree that having a will or a trust is a good thing, fewer people know what the difference between them is, and what the advantages and the disadvantages between them are. Put simply, a will is basically just a written instrument that dictates what you want to happen to your estate (all of the property you own) after your passing. The major disadvantage with just having a will is that a court will have to assign someone to ensure that the terms of the will are properly followed, in a process known as probate, and they will have to be paid compensation specified by California law.
Probate is a court proceeding that one must go through if they have a will or die without a will. In probate proceedings, your will (if any) is proved to be valid, your estate is inventoried for its worth, all debts are noted and paid, and the remainder of your assets are distributed according to your wishes in your will. Note that if there is no will, California law provides how your property will be divided among your surviving family (heirs). There are specific fees that must be paid to attorneys in the probate process in accordance with California law.
If you have a trust, on the other hand, the administration of your estate basically skips probate. Instead of having a California court appoint an administrator that will be paid fees specified by the State of California, in a trust you name the person or persons that you want to administer the distribution of your property without court involvement. Moreover, in a trust you can decide how much the administrator should be compensated (although the compensation must be reasonable) . Therefore, the entire process is much faster, cheaper and more efficient.
Another advantage of a trust compared to a will is that distribution of property at your death is private, whereas probate proceedings are public.
In more technical terms a trust is a relationship whereby one party called the trustee holds legal title to property for the benefit of another person called the beneficiary. The creator of the trust may be called the trustor, grantor or settlor. In order to create a trust, one must have:
(1) a settlor with intention to create a trust;
(2) a trustee who holds legal title to the trust and manages the trust;
(3) a party called a beneficiary who benefits from the trust and has the power to enforce its terms;
(4) trust property – where there is no property, you can not have a trust; and
(5) a valid trust purpose.
A trust may be made while a person is living – such trusts are call “inter vivos”, or “living” trusts. Alternatively, a trust may be created upon the death of a settlor – such trusts are typically created in a will, or some document incorporated by reference into a will, which are called “testamentary” trusts. One of the more popular current estate planning devices is a Revocable Living Trust.
A living trust is a legal document that indicates how your real and personal property will be allocated when you die. It is created by you, the trustor/grantor/settlor, and can be managed by you during your lifetime. After it is created, all of your property can be transferred to the trust. When you die, a successor trustee that you selected when you created the trust will transfer the property to those (beneficiaries) indicated in the trust.
A living trust is created by drafting the declaration of trust and transferring all of your property into the trust. If it is a revocable living trust, then you can change your mind at any time and revoke the trust. You can also revise such a trust at any time to indicate how you want your assets divided. Additionally, you can revoke the trust at any time during your life.
One major advantage of a living trust is that you do not have to go through probate. Additionally, distribution of your property at your death in a living trust is relatively quick, taking no more than weeks, whereas probate proceedings can take anywhere from several months to a year or more.
Other Factors to Consider- In general, when preparing a trust, it is a good idea to also prepare a “directive” stating what you would want to happen in certain situations where you are incapacitated. An Advanced Health Care Directive refers to written instructions about your health care. A directive can appoint an individual, called an attorney-in-fact for your health care (such an appointment is also referred to as a Power of Attorney for Health Care). The attorney-in-fact will make health care decisions for you based upon your discussions with them. The attorney-in-fact is typically a trusted person, such as a family member (e.g., spouse, child, or partner).
A directive can also include instructions that let your physician, family and friends know about your preferences for health care when you are not able to make those preferences known (such instructions are also referred to as a Living Will). The directive can include what medical treatment you want, or want to avoid, whether you wish to donate any organs and any other wishes you have regarding your health care.