Benefits of Establishing a Will or Trust 

A will is merely a legal document with instructions for the disposition of one’s assets at death, and takes effect only upon the death of the testator, i.e. the person who created the will.  A living trust is more than just a document – it’s a form of legal entity that becomes effective when signed and upon the transfer of one or more assets into the trust.  These assets can be held for the benefit of the trustor, i.e. the person who created the trust, during his or her lifetime, and following that person’s death, distribution of the assets in the trust is made to designated persons or entities.

All wills must be probated (except as noted below), which means lengthy and costly court proceedings.  Probate can be a very time consuming and expensive process — property transfer through probate can often take up to two or more years.  Probate is a public process, with court documents becoming part of the public record.  It can also be an expensive process, with substantial fees going to the executor and the probate administration attorney.  In California, an exception to probate may exist if the total value of the estate is less than $100,000.  But estates over that amount require probate if the decedent leaves only a will or unless the property is held in joint tenancy, with right of survivorship.  Often, ownership in joint tenancy may result in unfavorable tax consequences and, of course, joint tenancy only works to avoid probate when one spouse survives the other.  If both spouses die simultaneously, then instead of avoiding probate (or a proceeding in intestate succession) there will be two probates (or intestate proceedings if there were no wills) required, one for each spouse.  On the other hand, when individuals or couples have a living trust agreement that holds their assets and properties, then no court proceedings (i.e. probate) are required, and the beneficiaries receive the assets and properties without going to court, without lawyers, and without incurring great expense.

If you have been told that you must have a living trust in order to attain significant tax benefits, you were misinformed.  All tax advantages of living trusts can also be provided through a will.  These tax advantages include (1) maximizing tax exemptions that reduce or eliminate federal estate taxes, (2) attaining potentially favorable capital gains treatment on the eventual sale of assets by way of a stepped up basis adjustment upon death, and (3) in cases of marital estate plans, postponement of estate taxes until the surviving spouse dies.  The benefit of having a stepped up basis adjustment is that the assets receive a new value at the time of death, which value may in turn be used to eliminate or reduce the taxable gain on the sale of the assets.

We frequently create estate plans for families with young children. By establishing a living trust, parents are able to ensure that their children are financially secure in the event of unexpected death, and that minimal assets are lost to administrative expenses. By designating a guardian, parents can make their wishes for future care clear and legally enforceable.

Another difference between wills and living trusts, aside from the necessity for all wills to be probated (unless the estate is under $100,000, see above), only living trusts provide a form of built-in conservatorship over the assets and properties held in the estate.  This may be a significant difference because if an individual becomes unable to handle his or her own business affairs, there would be a need to establish a court ordered conservatorship over the person and his or her estate.  A conservatorship proceeding involves the appointment of a person to be in control of someone else and that person’s assets and properties.  In California, a court ordered conservatorship is expensive (usually costing $5,000 or more), time consuming, and requires an annual accounting made by the appointed conservator to the court, which further ads to the expense.  The conservatorship process can be avoided entirely by holding your assets and properties in a living trust, and designating persons who will be in control in the event that you become incapacitated and unable to handle your own affairs.

In California, it is generally considered against public policy to enforce your own trust agreement to defeat your creditors.  However, when a spouse dies, the deceased spouse’s assets held in the trust may be protected against the creditors of the surviving spouse.  Also, it is permissible to establish a living trust for the benefit of children or other persons that contains enforceable provisions protecting assets against your creditors.  These are known as “spendthrift trusts” and must be irrevocable, i.e. cannot be terminated or amended once established.  For additional information pertaining to the establishment of living trusts that provide protection against creditors, please contact our office.

Privacy: Because wills are subject to probate, which is a court proceeding open to the general public, and because all court files may also be inspected by the public (unless sealed by the court), only living trusts can effectively preserve privacy.  This is because living trusts are generally not recorded documents and are unavailable to the public at large.  Your wishes, and the disposition of your estate when you die, may remain totally private if your assets are held in a living trust.