People in California often become confused between a living trust and a will. Understanding the differences is vital to creating an estate plan.
Will definition
This legal document describes how you want your assets divided after your death. You must name an executor to pay your bills and oversee the distribution of your assets. The executor must file your will with the probate court.
Living trust definition
When you set up a living trust, you become its grantor and put assets into it. Once you put assets in the trust, then the trust owns them. You can give away these assets during your lifetime or arrange for distribution after you die. This document does not have to go through probate, and you can set up revocable or irrevocable living trusts.
Advantages of a living trust over a will
Depending on how the living trust is structured in your estate plan, there may be tax benefits to putting money in a trust. You can appoint yourself or someone else to oversee the trust’s management. It is possible to give away assets during your lifetime. Again, depending on how the trust is set up, your heirs can leave assets in the trust, which may give them added tax benefits.
Advantages of a will over a living trust
If you have minor children, you cannot name a guardian for them in a living trust. Therefore, you will want to create a will as part of your estate planning. At least initially, it is cheaper to set up a will than a trust. Since the will holds no assets until your death, you do not need to retitle your assets.
Wills and trust both have advantages. Therefore, you should carefully consider which option you prefer.