Will vs. Trust: What are the differences?
Confusion is common when discussing wills and trusts. After all, we do not talk about these documents frequently (unless we practice estate planning). Most estate plans have both a will and a trust. Some plans only have a will. Sometimes there is even a trust set up within a will. So what are the differences between a will and a trust?
Starting with a will, think of it as a letter to the judge in charge of the probate division. The probate division of the court handles post-death matters. The will provides directions to the court regarding what you wanted to happen before you passed away.
A trust is typically set up so that your loved ones do not need to petition the court and can handle the distribution of your property privately. Think of the trust as a bucket: During life, you move all relevant assets into your trust “bucket”. While living, you have complete control over the trust “bucket”. You can do whatever you want with it. Then, when you pass away, the assets in the trust “bucket” are typically distributed without having to go to court.
To recap: Difference #1: The will is like a letter to the court. The trust is a bucket that can help you avoid court.
With just a simple will, most cases will go through a probate administration process. This means that when you die, the court is being asked for help. Because of that, the court has very specific requirements and timelines. The court uses a formula to decide how much the attorney and the personal representative involved get paid. These costs are usually significantly higher than the costs of a trust administration. The court is not necessarily in any rush to finish the administration timely.
With a trust, because the process is usually privately handled, there is a higher likelihood that your loved ones can follow your wishes without having to pay higher fees or wait for timelines. This is not necessarily always the case, as family members, loved ones, and/or beneficiaries can fight over your trust if they believe you did not have capacity, were unduly influenced, or otherwise believe the trust is invalid. However, in most instances, the trust is the cheaper, smarter way of doing handling things.
To recap: Difference #2: Unlike most wills, trusts avoid the probate process, usually saving everyone time and money.
Because we can think of the trust as a bucket holding on to your assets for you after you die, it is important to note that a trust must be funded with assets. This step requires transferring ownership of the assets from your name individually into your name as trustee of your trust. This process is not required with a simply will.
As mentioned above, a simple will, by itself, will usually result in a probate administration process. California’s Medi-Cal Estate Recovery program treats the probate administration differently than a trust administration. Mainly, Medi-Cal will only seek repayment from estates (as in assets in the probate administration). Medi-Cal will not seek repayment from assets that are in trust. In this way, the trust avoids Medi-Cal recovery and protects your assets that are held in trust.
To recap: Difference #3: The trust requires that assets be “funded” into the trust, but the assets inside of a trust are not subject to Medi-Cal recovery/repayment.
It is a good idea to speak with an attorney about what is the best fit for your situation. Depending on your unique circumstances, an attorney may recommend a will, a trust, or both a will and a trust. By planning ahead, you can help family members avoid confusion, frustration, and expense after your death.