Living trusts and wills are legal methods used to denote beneficiaries and the division of assets when a person dies. Although these two documents are similar, they each follow different ways of defining divisions. In California, the law allows an estate to have one or both documents. Choosing the best method depends on costs, the total value of the estate, and potential tax consequences.
A will is comprehensive. It is used to name a beneficiary, how assets should be divided, and names an executor. Wills are also used to provide cremation or burial instructions and name a guardian for any children.
Wills involve a probate court. These documents are not considered in effect until the grantor passes and the document is filed in court for review. This is a lengthy process and can be expensive. California probate law details these costs which vary based on estate’s gross value. For example, a $600,000 estate would cost $15,000 in attorney’s fees and up to an additional $15,000 in executor’s fees. Finally, probates often require court confirmation or approval of the valuation and distribution of assets, adding an additional layer of bureaucracy to the proceedings.
Probate laws require the named executor to file a public listing of all assets. The purpose of this notification is to ensure any creditors can file claims for debts owed. Expedited probate is a less expensive option for estates valued under $150,000 and there are no known debts the descendant might owe. In this case, the process is substantially shorter and generally completed within a few months.
A living trust also names an executor, or trustee, and beneficiaries. The maker of the trust, called the trustor, specifies the division of assets. Unlike a will, a trust is valid while the maker is still living or completely capable. Until death, the maker of trusts also functions as the initial trustee. A successor trustee can take over if the maker becomes incapacitated or dies.
Any assets are placed into a trust as specified by the trustor. Instructions are included for how the trust should be managed. Living trusts do not go through the same court process as wills, so the cost is substantially lower. Additionally, trusts allow for a specification of which amounts should remain in the trust after death. This is usually ideal for providing income for children. It is also common to specify beneficiary ages for access as well as for purposes of the funding, such as education.
Generally, wills are relatively inexpensive to prepare but become more expensive when the grantor passes. On the other hand, living trusts cost a little more to set up but have little or no expenses at the time of the grantor’s death. In addition, wills leave work for the heirs and executor while a trust takes care of everything from the beginning. Although each person’s case is different, owning real estate in California typically means a living trust is the best choice.