You’ve heard of the words “trust” or “will” and probably wondered what they are, and which would fit your situation. Keep reading for some helpful information.
A trust is a contract between the owner of assets (the trustor) and the receiver of those assets (the trustee) to hold and administer those assets on behalf of stated beneficiaries. In the trust document, which memorializes this contract, an individual or couple can leave instructions on who their beneficiaries are, what assets they own, and how and to whom they would like those assets to be distributed. There are two main types of trusts- revocable and irrevocable trusts. More commonly when people refer to trusts, they are referring to the revocable one. A revocable trust is one that can be changed (amended) or canceled (revoked) at anytime, as long as the trustor has contractual mental capacity.
A will, similarly, is a document where a couple or individual can leave instructions on who their beneficiaries are, what assets they own, and how and to whom they would like those assets to be distributed. Couples and individuals with minor children can also appoint permanent and short term guardians for their children. When discussing wills, as an alternative to trusts, witnessed wills are the ones being referred to. There’s another common will (a pour-over will) but this is one that accompanies trusts and is not a standalone estate planning document.
Which to choose?
The choice of which best suits your particular situation depends largely on the answer to these two questions: (1) your current and future expected net worth and (2) how those assets are held. In California, if you died with a will or died intestate, and your net worth, minus any non-probate assets, exceeded $150,000, then the estate would have to be administered through the court administered probate process. A trust allows you to bypass that court administration and wrap up the estate privately. This is why your net worth is important. Additionally, even if your net worth far exceeded the $150,000 exemption amount, but the bulk of the assets were held as TOD (transfer on death), POD (payable on death) or joint tenancy, with primary and contingent beneficiaries, probate could still be avoided without a trust. This is because accounts or assets held as TOD, POD or joint tenancy are transferred to the surviving beneficiary or joint tenant automatically, without further administration.
Understanding these two main documents go a long way in helping you make preliminary determinations of which is best suited for your needs. There are further considerations, of course, because your life is rarely as simple as you believe it to be. An experienced family protection planning attorney would present those considerations to ensure that your chosen plan is effective.