In California, planning your estate involves important decisions about the best tools to accomplish your objectives. Commonly used tools like wills and trusts govern how your assets get distributed to your beneficiaries, and it is essential that you understand the features of each and how they apply to your case. The following points can highlight the differences between a will and a trust to help you make an informed choice.
Defining a will
A last will and testament, or will, outlines how you would like your assets distributed to your heirs upon your death. This document identifies your possessions and names each of your beneficiaries. The will also contains instructions to appoint someone as executor to fulfill your wishes. In California, wills go through a court process called probate, which makes your will a public record. The will’s directives become effective upon your death, and you can modify a will during your lifetime using a document called a codicil, which supplements your will.
Advantages of a will
If an individual dies without a will in California, their assets are distributed to heirs based on the state’s intestacy laws. This means distant relatives could inherit the person’s assets, although they never met. Establishing a will grants you control over distributing your assets and provides flexibility for the process. You can use your will to establish testamentary trusts, for example. You can also set up your will to include any assets you may have forgotten to include in a trust.
Defining a trust
A trust is an estate planning tool that goes into effect while you are alive. Setting up a trust involves transferring your assets to a trustee who will manage them according to your wishes. Unlike a will, a trust does not go through probate upon your death and remains private. You can create different types of trusts, such as revocable or irrevocable living trusts, a spendthrift trust or a special needs trust. Each type of trust has a distinct purpose with unique benefits and implications.
Trusts provide many benefits, such as faster asset distribution to your beneficiaries and avoiding the cost of having your estate go through probate. Certain types of trusts can help minimize estate taxes, while others can provide income to disabled individuals without affecting their eligibility for government assistance.
Moving assets into a trust offers protection from creditors and legal challenges in some cases. Once you place assets in a trust, their distribution follows the terms of the trust regardless of any provisions in your will.
Understanding the difference between wills and trusts is essential for effective estate planning. Using a will offers flexibility, while a trust can avoid probate and keep your estate records private.