A Will or a Trust?

Posted by on Sep 9, 2019

A Will or a Trust?

Very often people do not know whether they need a Will or a Trust. The answer is usually: both.

Most people are familiar with what a Will is. It’s a simple document, handwritten or printed on fancy paper, that says who will inherit what you own after you die.  If you have children under the age of eighteen, a Will is where you may nominate the people you would like to take care of your children as Guardians appointed by a Judge, if you die before the children are adults.

That’s it.

A Will does nothing to address a myriad of issues and needs 
if you ever become incapacitated due to illness, injury, or plain old age.

And, for our purposes, in California, importantly, a Will does nothing to prevent a required legal proceeding called probate after you die.

The court system is packed full of cases regarding deceased people who had very fine wills and thought they were all set.

If you have a Will alone and you own $150,000 or more worth of assets without designated beneficiaries named on accounts, or if you own a house, regardless of having a mortgage, that Will does nothing to shield your heirs and beneficiaries from having to spend two to three years and thousands of dollars in attorney fees before your heirs will eventually take title to what you left to them.

And, if you become incapacitated, your Will has no effect since a Will becomes effective only upon death. That’s why every adult over 18 years of age, regardless of whether she or he has two nickels to rub together, needs to have signed a Power of Attorney for Financial Management as well as an Advance Health Care Directive. If you can’t handle your own finances or make your own health decisions, you need to have already named Agents who can do these things. You can’t wait to see if one day you’ll become incapacitated because by then, it will be too late.

When we make a trust for clients, it is always accompanied by a Will with language in it referring to the fact that the individual or couple have a trust. This is called a “pour over Will.” Why is that? The trust is the document that specifies who will inherit. Yet the pour over Will is needed as a back-up. It states that Jane Doe made a trust on Such-and-Such a date and that it is the intention of Jane Doe that everything that she has that should be in a trust “pours” into her trust.

A pour over Will is necessary because probably about half the people who sign a trust document don’t follow through on their lawyer’s instructions to then go to the banks and brokerage houses and retitle their trusts in their names as trustees.  Without having followed through on changing title to assets, upon a person’s death, there would need to be an expensive and lengthy probate proceeding – with an exception.

If Jane Doe made a pour over Will along with her trust, then her successor trustee, with an attorney, will take that pour over Will to court, and the successor trustee will ask a Judge for an Order to put Jane Doe’s bank accounts into her trust after Jane Doe has died.  Once Jane Doe is dead, the Judge can’t ask her if she’d like her Merrill Lynch account to be in the trust rather than in probate court. So the Judge will look to the existence of the pour over Will, as evidence that Jane Doe wanted her accounts to be in the trust, even if she never got around to making that happen.

People contact me every week with a brief statement like this: “I need to make a Will.” I am then happy to explain to them that in the realm of estate planning, they need much more.

If your estate plan is not up to date, please feel free to contact me for a review and an update. As always, I appreciate your referrals.