Estate Planning, Wills, and Trusts
The public generally has some understanding of wills, trusts, and estate planning. Almost everyone has heard of a will. Some people have also heard of a trust. However, people are often unclear as to the advantages of a trust over a will, and when a will is all that is needed. Hopefully, the following explanation will shed a little light into the world of estate planning, wills, and revocable trusts.
When to use a will
Usually, people feel that a will is sufficient to distribute their estate and take care of their family once they are gone. If a person has a relatively small estate, or only a few assets, this may be the path to take. A will states your wishes as to the distribution of your estate, including the person who will be responsible for carrying out these wishes, called the executor. Creating a will ensures your intentions are carried out, and that your assets are left to the people you want to have them. Prior to creating a will, however, one should consider the potential disadvantages to using only a will.
A will may result in a probate of the estate. A probate is a court procedure that can be time-consuming – often taking up to a year or more – and expensive. In California, if a person’s estate exceeds $150,000, or has real property worth more than $50,000, it must go through this probate procedure, and the costs of probate can eat up a good percentage of the estate. Not every asset, such as life insurance, retirement accounts, or a mobile home, is considered part of an estate for probate purposes. However, real estate is considered part of an estate; and, most likely, the majority of homeowners in California are going to have a gross estate that exceeds $150,000, or at least real property that exceeds $50,000, necessitating a probate.
There is an alternative to a will which allows an estate to pass outside of probate and avoids conservatorships as well. This alternative is known as a revocable trust. Placing your assets in trust minimizes the difficulties and cost that your family will face upon your death, and saves time and preserves privacy. A trust is similar to a will in that it provides for the distribution of your property upon your death. It is also revocable, which means you can change your distribution, amend or modify any portion of the trust, or even terminate the trust at any time up until your death or incapacity.
Furthermore, the trust will survive your death. As an entity, it can exist for future generations. As a result, if your children are still minors upon your death, for example, the trust can prevent them from receiving outright distributions from your estate. Instead, a trustee – a person who manages the trust and trust assets – may have the discretion to determine when and how much at a time your beneficiaries will receive in distributions. It can also be structured to provide asset protection to your beneficiaries.
Consequently, people who have estates in excess of $150,000 or have real property in excess of $50,000 should consider a revocable trust instead of a will. A trust will prevent a lengthy and costly court procedure, as well as secure your property in an entity that will survive your death. We, at the Corman Law Offices, have over 37 years’ experience in estate planning, and are happy to sit down with you and discuss what might work for you.