What is the difference between a Will and a Living Trust (“Trust”)? This is a basic question people need answered by a Lake County wills attorney. Let us examine the primary differences between Wills and Trusts. These differences relate to the following issues: (1) whether a Probate is involved; (2) what assets and legal affairs are implicated; and (3) when does the document take effect?

The Will, it is a “legal instrument” that allows you to name an Executor to act as the Personal Representative of your estate. A Will only takes effect after you die. Under court supervision, the Personal Representative will process and settle creditor claims, transact unfinished legal matters, and distribute what remains to your named beneficiaries according to the written terms of the will after you die.

A Will controls so-called probate assets – such as interests in real property, personal property, assets and financial accounts – if interests in these are held in the deceased person’s name individually. It does not control assets that pass automatically to designated beneficiaries (e.g., persons inheriting under insurance, joint tenancy, or retirement plans); nor does it control assets held in Trust. That said, in California a Will must be “probated” if the total probate estate exceeds $150,000 in gross value (i.e., debts are not subtracted).

Probate requires a Petition for Probate to admit the Will and authorize the Personal Representative. It then proceeds with the inventory and appraisal of assets, the notification of creditors, the payment of all taxes, the settling of claims, and essentially ends with a Petition to distribute assets to the beneficiaries of the Will. The foregoing process takes 5-6 months at a minimum (usually longer), and may take much more if there are complications (e.g., creditor disputes , controversy over the terms of the Will, and valuation issues, etc.).

A Will is necessary, even if one has a trust,  for a number of reasons.  Perhaps the decedent has unfinished legal business (a lawsuit for example) pending at the time of death that requires a court-appointed Personal Representative to finish. Perhaps some probate assets were not transferred into the decedent’s Trust prior to death.

Next, consider the Trust. A Trust is a contract between the “Settlor” (the person who establishes the Trust) and the “Trustee”, the person who agrees to hold certain property “in trust” for the benefit of “Beneficiaries” according to the terms of the Trust. A Trust controls those assets that are legally transferred to the Trustee.  Typically this would include one’s home, rentals, and nonretirement investment brokerage accounts.

Unlike the Will which takes effect at death, the Trust commences once funded. When the Settlor later becomes disabled, resigns, or dies, a new Trustee (whom the Settlor nominated) becomes trustee. He or she manages the Trust assets and uses or distributes them according to the Trust’s own terms. A Trust thus avoids the need for a court-supervised Probate at death, and also for a court-supervised Conservatorship (of the estate) during disability, at least in regards to assets held in the Trust.

So, when would you want a Will instead of a Trust? Very simply put, a Will is usually preferable for anyone with under $150,000 in probate assets – this excludes pay on death accounts. Below $150,000, tangible personal property, financial assets and mobile homes can be transferred using the “Affidavit Procedure”. Incapacity planning would be based on powers of attorney.  Above $150,000 a Trust is usually preferred, as settling a trust estate is usually less expensive, time-consuming and aggravating than settling a court-supervised probate estate.

Lastly, a trust may be needed for reasons related to the beneficiary such as the beneficiary is a minor, receives SSI/Medical, is susceptible to undue influence, or is incapable of managing money.  In such cases the beneficiary’s inheritance would be held in further trust for their lifetime.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”