To answer this, let us examine the primary differences between wills and trusts. These differences relate to the following issues: whether a probate is involved; what assets and legal affairs are implicated; and when does the document take effect?
First, a will 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 real property, personal property, assets and financial accounts – if these are held in the deceased person’s name. 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, a will is “probated” if the total value of the estate exceeds $100,000 in gross value (debts are not subtracted).
Probate begins with 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 pursuant to the terms of the will.
The foregoing process takes five to six months at a minimum – usually longer – and may take much more if there are complications, such as creditor disputes, controversy over the terms of the will and valuation issues.
A will is good if the decedent had any unfinished legal business (a lawsuit for example) at the time of death because the only person who can represent the decedent’s estate is the court-appointed personal representative. Typically, the person nominated in the will as the executor becomes the personal representative. It is important if assets were not transferred into a trust.
Next, let’s examine the trust. A trust is a contract between the “settlor” (the person who creates – 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 (re-titled) from the settlor to the trustee (such as one’s home and investment accounts).
Unlike the will, the trust commences once funded. When the settlor is disabled, resigns or dies, a new trustee (whom the settlor nominated) takes over, manages the trust assets and distributes them pursuant to the trust’s own terms. A trust thus eliminates the need for a court-supervised probate at death, and 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 versus a trust? Very simply put, a will is usually preferable for anyone with under $100,000 in probate assets. Below that threshold, tangible personal property, financial assets and mobile homes can be transferred by way of the “affidavit procedure” (without court). Above $100,000 a trust is usually preferred, as settling trust estates are usually less expensive and time-consuming than probate.
Dennis Fordham is an attorney who practices in Lakeport. He welcomes your calls to reserve a seat to attend the next free public educational seminar on the topics of wills, trusts and estate planning, and special needs trusts. Call him at 263-3235.