Wills and Trusts are similar in that both are legal vehicles for passing assets at death and can each be amended throughout the will or trust maker’s lifetime. However, the differences are far greater. Wills must be submitted to the Probate court and proved up (proven to be valid), and therefore require court supervision in order to pass a decedent’s assets to their beneficiaries after all debts and expenses of the decedent have been paid. Further, a will is a death-time document and has no legal effect during a will maker’s incapacity.
Revocable trusts, on the other hand, are living documents that can be designed to protect the trust Grantor while they are incapacitated from a court supervised conservatorship. A conservatorship is a court process where a person is approved by the court to manage your finances and/or your healthcare. Trusts are not typically supervised by the court and do not go through the Probate process when the trust maker dies. They are also a way to preserve privacy upon administration and are typically far less costly in terms of trust administration as compared to typical Probate fees and costs in California.
The avoidance of a conservatorship over the estate of an incapacitated person is preferred in most circumstances. This is due to the expense and legal complexities involved with court supervised conservatorships. A properly drafted revocable trust can help the trust maker avoid a later conservatorship by assigning a Trustee to make financial decisions about the trust assets and to pay the trust maker’s bills and medical expenses if they are unable to personally. Conservatorships are expensive and require court supervision and accountings. The court may also appoint someone you never envisioned being in charge of your financial or medical affairs. So, it is best to designate a Trustee through a revocable trust and have a durable power of attorney agent assigned for financial matters that occur outside the trust. This person is often the same person as your successor Trustee on your trust.
Wills are also inferior because they are subject to public inspection. This is not desired because of the lack of privacy. The whole world will be put on notice as to what assets you owned at death, who your creditors were and to whom you left your assets. Another danger attendant of only having a will and it becoming public knowledge after death is that the Executor could be approached by unscrupulous investment firms and taken advantage of. Trusts are private documents and afford the Grantor a shield from the outside world’s prying eyes.
In California, a typical will Probate case can take from 16-24 months on average. This is because the court systems are over-crowded due to budget cuts. For example, in September of 2012, the North County San Diego Probate Court was closed and all Probate matters were moved to the San Diego Central Probate Court in downtown San Diego. On the other hand, a simple trust administration typically takes 6-12 months but for larger estates that are complex (i.e., estates subject to estate tax or contain unusual assets), it could take longer but still usually less time than a Probate.
Will Probates also cost far more than the cost involved with a trust administration. For example, a Probate on a $1,000,000 estate would be over $46,000 for the Probate statutory and filing fees. The fees on a Probate case are calculated on the gross value of the estate, not taking into account any debt against any of the property. Therefore, you could have a house that is worth $1,000,000 that has a loan against it for $800,000. Yet, the statutory fees are calculated on $1,000,000, not $200,000 of equity. Trust administration fees on the other hand are typically far less, typically around 1% give or take. They vary based on the complexity and size of the estate, but they are almost always substantially less than the fees for a Probate court case.
If you need help setting up your revocable trust in California, please reach out to us at (760) 448-2220.
