Finding the Right Estate Plan
Will or a Trust? The topic presents confusion for many. Some of this confusion comes from not knowing what these documents are or what they do, and some comes from not knowing which one you might need for your particular situation. Let’s start by talking about what each document is.
The will is the document that tells everyone where you want your estate to go after you die. (Estate = everything in your name – your house, your bank accounts, that bottle of snake whiskey from your last trip to Thailand, etc.) You can also use it to name guardians for your minor children. It’s the most basic part of any estate plan – if you only want to create one document, it should be the will.
The trust serves a slightly different function. A trust is a legal entity, the same way a corporation is a legal entity. And like a corporation, a trust can own property. There are two main reasons people want to have their property in the trust’s name, instead of their own:
- They don’t want their children to inherit too much too soon. Since a will is essentially a set of directions, it can’t hold money or property, it can only tell people where it should go. With a trust, you can have the money stay in the trust until your children are old enough to have the maturity to use their inheritance wisely.
- They want to avoid probate. Probate is the process where the government oversees the administration of the estate. The idea is to make sure everything goes where it is supposed to, but like most things run by the government, it’s not ideal. In California, probate is required if your estate is worth more than $166,000 (as of January 2020), whether or not you have a will. However, anything owned by the trust is not counted as part of your estate (at least for probate purposes), so by putting your house and other high-value assets in the trust, you can keep your estate below $166,000 and avoid the entire probate process.
So which one is right for you?
Regardless of where you are in life, or how much you have, you should have a will. Even if you don’t have much, a will can help make the process of distributing everything easier, and choosing someone to be in charge of that (otherwise known as the executor) will save everyone the headache of making that choice for you and asking the court to approve the person. (Yes, the court will have to approve them – banks and financial institutions won’t speak to anyone unless the person provides a will or the court documents naming them the executor.)
If you have a house, young children, or a net worth of more than $166,000, you should have a trust in addition to the will. A trust will keep your estate out of the Probate Court, and it will make sure that your children are provided for, but they won’t receive a large amount of money before they’re old enough to know what to do with it.
If you would like to learn more about wills and trusts, or would like help creating them, please feel free to contact me at firstname.lastname@example.org.