I have had many parents and other clients ask me, “What is a will?” and “Do I need a trust?”. Others tell me that they have been told that they do not need a living trust and that a will is sufficient. Every person (especially parents of minor children) needs at least a will and most living in the Bay Area will need a living trust.
What are wills and living trusts?
At the most basic level, a will and a living trust both serve to state what you want to happen to your property when you pass away. You name someone who will take over for you when you are gone and you state who receives your property and at what age they will receive it. There are many important differences between a will and a living trust, the most important of which involves what actually happens when you pass away.
As stated above, a will is a document that states who gets your property after you die (real estates, bank accounts, stocks, bonds, mutual funds, personal belongings, etc.; it does not affect IRAs, annuities, life insurance, or any other type of account or investment in which you have named a beneficiary). There are several things to be aware of, however, when deciding if a will is appropriate. If your estate exceeds $150,000 at your death, your will needs to be admitted to probate after your death. Probate is a court procedure in which the court oversees the collection and distribution of your estate. There are several problems with probate. First, probate takes a long time, typically one year from the date of death. Second, probate is a public process and all information submitted to court (such as the names of your children and what you own) are public documents. Finally, probate is expensive. For example, the attorney’s fees to probate a $600,000 estate will be at least $15,000.
If your estate exceeds $150,000, a living trust is best. A living trust is similar to a will with the added benefit that it avoids probate at death. It is simply a contract between the creator of the trust (the settlor) and the manager of the trust (a trustee) who agrees to hold property for the benefit of another (the beneficiary). Usually, the settlor, trustee, and beneficiary are the same person or persons. A living trust can be modified or revoked during the creator’s lifetime. A living trust names a successor trustee to serve when the original trustee is no longer able to do so. During the settlor’s lifetime, the successor trustee’s job is to use the trust for the benefit of the settlor if he or she is still alive but unable to manage the trust. After the settlor’s death, the successor trustee is to carry out the terms of the trust, typically by distributing the trust to the beneficiaries. If the beneficiaries are underage or have other issues, the assets can stay in trust, managed for their benefit, with payments being made for their health, education, care, support, and maintenance, until the beneficiaries reach a specified age; assets can also be held in trust for the lifetime of the beneficiary. If a beneficiary is disabled, a special needs trust can be used to preserve the beneficiary’s ability to receive SSI, Medi-Cal and other needs based programs. Since all property in the trust avoids probate, there are no probate attorney’s fees to pay, saving thousands of dollars.
Even if a living trust is appropriate for you, you will still need to execute a will. The will is where you will name a guardian, the person who will raise your minor children if you cannot. Also, the will (sometimes called a “pourover will”) states that your property will be turned over to your living trust upon your death. This is done in the event that a bank or other financial account does not get put into your trust prior to your death. The “pourover will” ensures that the account goes where it is supposed to.
If you have any questions about this article or any of the topics discussed, please feel free to call me at (408) 457-6575.