What is the Difference between a Will and a Trust?

UNDERSTANDING ESTATE DOCUMENTS

  1. Power of Attorney for Health Care
  2. Power of Attorney for Finances
  3. Will for personal property
  4. Living Trust for Real Estate

TL;DR: Powers of Attorney are only valid while you are alive.  When you die, the powers of attorney die with you. A Will is a legal document that says who gets your assets and personal property after you die.  A Trust holds title to your house.  If you don’t have a house, you don’t need a Trust.  Probate Court is expensive because it’s based on the value of the assets to be transferred. By naming beneficiaries, you avoid probate. 

What’s the Process?

A Will is filed in probate court, is public record, and the Probate Court handles the transferring of assets, the process is supervised by a judge.  A Will names an executor, a person to oversee and distribute your estate after you die, it also lists your final wishes and gives a list of your assets.

SAMPLE WILL:   A will can be very detailed or a simple basic form, such as this one: https://www.docdroid.net/7cZwnsi/california-last-will-and-testament-template-pdf

Making a Will is necessary for young families who need to appoint a guardian for minor children.  After a marriage, a new baby, a divorce or any other major life change, make sure you change your will.

At the same time, check your beneficiary designations for your 401(k), IRA, Pension, and life insurance.  All financial accounts with named beneficiaries will transfer automatically to the named beneficiary, regardless of what your Will says!

Here’s an example of what can happen if you list the wrong beneficiary on your retirement account: 

https://www.thinkadvisor.com/2024/05/09/the-ex-girlfriend-and-the-401k-windfall-a-cautionary-estate-planning-tale/

A Living Trust is a Will’s fancier cousin.

A living trust lets you create a legal entity on paper to hold title to your assets. By putting a name on your assets, this avoids the probate process entirely because Trusts can be handled outside of Probate Court.

In a Trust, you basically name yourself as the trustee while you’re alive. Changes can be made by a Trust Amendment.  Trust amendments can be done with a signed and notarized statement signed by both of the Trustors.  Trust Restatements can update an older Trust with new information or new assets.

A revocable living trust moves your assets into a trust so they can go directly to your heirs upon your death.  This effectively puts a ‘name’ on the asset, and this allows the Trust to transfer property after death, because the Trust is a legal entity all by itself.  A successor trustee is named to take over when the original owner dies. They then distribute the assets according to directions in the Trust.

Instead of your property deed reading, owners “Mr. and Mrs. Smith, husband and wife, as joint tenants”, the deed for your house would say “The Smith Family Trust, Mr. and Mrs. Smith, Trustees.” 

For a trust to work, you must transfer legal ownership of your assets into the name of your living trust.  Remember, you are still the person controlling the trust!  You aren’t giving away anything now.  You can also set up provisions for how the remaining estate is transferred. It’s up to you.

A TRANSFER ON DEATH DEED – THE NEW KID ON THE BLOCK IN ESTATE PLANNING

  1. A transfer on death (TOD) deed allows property owners to transfer real estate to beneficiaries upon their death.
  2. It’s a deed that basically says, “If I still own this property at the time of my death, I hereby leave my property to the following beneficiary,” Since it is recorded with your Title at the County Recorders’ office right after you sign it, it can’t be lost or misplaced.
  3. The property does not go through probate court. Instead, beneficiaries provide a death certificate and proof they have notified all other potential heirs. A new deed is drafted and this completes the transfer of the property to the heirs.
  4. The owner retains full control of the property during their lifetime, including the right to sell or change the deed. They can take out a home equity loan if they want to, the house is still theirs.
  5. Beneficiaries do not have any rights to the property until the owner’s death.
  6. A TOD deed can be revoked or changed at any time before the owner’s death.
  7. It is important to ensure the deed is properly executed to avoid legal issues. Consult with an attorney for personalized advice and to ensure compliance with state laws

A Transfer on Death Deed does not destroy a Joint Tenancy.  Each owner of a property must sign their own Transfer on Death deed, as joint ownership creates a 50% ownership in the property to each person. A Transfer on Death deed is good for the average Mom and Pop and one or two kids estate. Even if you have more than one property, you can use a Transfer on Death deed on each property. The complication is that if a named beneficiary dies before the owner, the TOD is invalid (you can’t name any “back up” beneficiaries). This is a new legal instrument, approved in California less than five years ago, so we are still establishing the legal boundaries of this type of transfer.

Often when refinancing a property, you will be required to remove your property from your Trust and put it back into your individual name(s). This is because a Trust can’t sign a mortgage, only a person can. Sometimes they forget to put your house title back into the Trust, and then the property will have to go through Probate Court when you die. You can also use a Transfer on Death deed leaving your house to your Trust as well.  For additional information : https://legalclarity.org/california-transfer-on-death-deeds-a-comprehensive-guide/.

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