ESTATE PLANNING F.A.Q.

WHAT IS A WILL?

A will is a legal document that provides instructions with regards to: distributing your assets when you die, naming a person to administer your estate which includes paying off your debts and managing the distribution of your assets, and naming a guardian to raise your minor children, if applicable.  It’s not expensive to create but it does require your estate to go through Probate Administration when you die.

WHAT IS A TRUST?

A trust is a legal construct; that is it’s an entirely legal but made up “thing”.  The best way to understand what a trust is and what it does is to use an analogy and then define each of the terms.

Suppose you have three sons.  You have an idea on January 1 that you want to give each of your sons a flat screen T.V. for Father’s day.  You have money in your estate so you pay for these televisions.  The man at the television store places the televisions into a secure storage facility until it’s time for delivery.  When it’s time for delivery, he places them in the back of the delivery truck.  He carefully drives the televisions, making sure to deliver each of them undamaged and in the same condition as when they were purchased back in January.  Each son answers the door on Father’s day and by the end of the day, a television has been distributed to each of the three sons.

In this scenario, the purchaser of the televisions is known as the trustor, settlor, or simply the person who created the trust.

The televisions represent the assets.  Putting the assets in the back of the truck represents the action of funding a trust.  If the truck is driving around and no one remembered to load it, then when it’s time to distribute, there is nothing there to distribute.

The truck is the trust; the legal vehicle for fulfilling the trustor’s intentions in creating the trust.

The truck driver is the trustee; the person responsible for taking care of the assets in the trust until it’s time to deliver them to beneficiaries.

The sons getting their televisions are the beneficiaries.

Two people in the front of the truck that are both responsible for delivering the televisions?  That’s co-trustees.

Sometimes the person that purchases the televisions is the same person that drives the televisions and also delivers one to his own home. This is common in a revocable living trust where the settlor is also the trustee and also a beneficiary during their lifetime. Click here to watch a short video on trusts.

WHAT DOES A TRUST DO?

A revocable living trust is generally used to avoid probate, to take advantage of certain estate tax benefits, keep your estate details private, and to allow a person to maintain control of their property while they are alive but also ensure that it’s managed according to their wishes in the event they become incapacitated or when they die.  In California, if your estate is worth more than $150,000.00 and you die without a trust then you will be subject to the full Probate Administration process.

Please watch our video by clicking here to see what a trust is.

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