Will vs Living Trust in California: Which One Gives Better “Control from the Grave”?
Planning on what happens after we pass away makes many Americans uncomfortable. Pondering one’s death is hardly a desirable topic but the consequences of failing to make arrangements on what happens to your assets upon your death can be a lot more unpleasant than the planning process itself. Especially considering that we don’t get to redo our will or living trust once we pass away.
What is probate in California?
California has pretty strict laws governing what happens to your assets, aka, stuff, once you are no longer among the living. Unless your personal property (cash, stocks, etc.) and your real property (primary residence, rental properties, etc.) are worth less than $166,500, your estate will need to go through something called probate.
There are several exceptions that would allow you to avoid probate. Generally, unless you have set up a trust while you were alive which designates who can step into your shoes upon your death and take over your matters--welcome to probate.
“Probate” roughly means “to prove the will” in Latin and the process is designed to do exactly that, in a broader sense: the judge will preside over your probate case and make sure that your assets are distributed according to your wishes (if you left a will) or according to the state laws (if you left no will, aka, died intestate).
In California, probate takes about a year from start to finish and costs tens of thousands of dollars. Probate costs are generally deducted from the estate (cash plus real estate sale, if applicable) but some fees must be paid upfront, out of pocket. Contrary to popular belief, having a will does not avoid probate in California!
There are many, many advantages of having a trust vs just a will, but in this post, we are going to focus on just one benefit: control.
What is a "holographic will" in California?
A simple holographic will in California costs nothing and creating one is as easy as writing your wishes on a piece of paper and signing it. A “holographic” will simply mean that it was handwritten and signed by the testator. As long as the testator is 18 years or older and of sound mind, the will is considered valid. While having witnesses is considered helpful, it is not legally required and will not disqualify the will.
As long as it can be proved that the will was written by the testator in sound mind, even a simple note on a napkin is considered a valid will in California.
In reality, things are a little bit more complex. Just having a valid will doesn’t mean that it is a smart way to do your estate planning. First of all, as mentioned previously, a will does not avoid probate. Secondly, a simple handwritten note might take care of general inheritance matters, e. g.: “I leave everything I own to my four children.” However, family relations, various types of assets, simply put -- life -- is usually more complex than that and cannot (and should not) be settled on a piece of napkin written by an often stressed, possibly, ill, testator.
Why is a living trust better than a simple will?
The word “planning” in “estate planning” is crucial, and planning early is preferable. Just like the old adage goes: “You don’t know what you don’t know.” Once you sit down with an estate planning attorney, he or she will ask you a lot of questions. The lawyer may prompt you to discuss estate planning scenarios that you may have never considered. This is where living trust’s flexibility and ability to cover unique scenarios are priceless. A simple will won’t be able to accomplish it.
Let’s come back to the situation where a California homeowner states in their will that the house should be inherited by all their children. For the sake of example, let’s say that the homeowner is a mother of four adult children. One of the children, a daughter, has a disability, and currently lives in the same home with her mother (the testator).
Once the mother passes away, the house will go to probate. If the will stated that the home goes to all the children, the judge will authorize its sale, at the request of one of the brothers, who is the petitioner. After the lengthy probate process, the home is sold and each child receives an equal share of the proceeds. Unfortunately, the disabled daughter is going to be evicted and may become homeless.
If this sounds like an unlikely horror story, it is not. Sadly, we see similar situations in our California probate law practice quite often. So, even though the mom had a will, in this example scenario, the will did not protect her estate from going into probate nor did it protect her disabled daughter from getting kicked out of the house. The only way for the daughter to remain in the house would be for all her siblings to agree to halt the sale of the property.
If the mom had set up a living trust with a reputable attorney, the heartbreaking consequences could have been easily avoided.
In a living trust, she could have specified that upon mom’s death, the daughter is allowed to live in the home until she dies. Only then the remaining siblings can sell the house and divvy up the proceeds. This is not the only possible solution. A well-crafted living trust can foresee many possible scenarios and offer future trustees a blueprint that clearly expresses the decedent’s wishes.
Here is another example to illustrate that a trust is better equipped to carry out the estate owner’s wishes compared to a simple will.
Protecting your assets and legacy
Many families prefer to keep money in the family. Say, mom and dad have a will and a certain amount of cash is left to their daughter upon their death, who is married. The daughter eventually gets a divorce. The inherited money becomes part of the married couple’s estate and can be included in the divorce settlement.
However, if instead of a simple will, the parents had a trust with an asset protection component, the outcome would be different. Upon the parents’ death, a “baby” trust is born and, in the event of the daughter’s divorce, the ex-husband cannot touch the money. If the daughter passes away, the money goes to her children (the grandchildren of the decedents), not the ex-husband.
Examples of how a living trust can handle complex life situations are endless. In every case, a trust allows one to plan for complex scenarios and “control things from the grave.” In some cases, the person setting up a trust may want to do it because they like to control things, but in most cases, a trust is a tool to leave things better than you found them and to take care of and to protect your family and your legacy. For Californians who are homeowners and who have children or other heirs, setting up a trust is a necessity; a will alone does not offer the protections and detailed planning most homeowners expect from estate planning documents.