One of the most common questions about estate plans is: What’s the difference between a trust and a will? In California, the difference is big if you’re a homeowner. Basically, having a properly prepared and funded trust means avoiding Probate, while having just a will (or worse, no estate plan) means the estate will have to go through Probate.
Here is a brief overview and description of the various estate plan documents, what they do, when we use them, and the title of the person in charge. For more information about common questions and estate planning issues, click here. To schedule a free consultation, click here.
Declaration of Trust: This is the document that allows a client’s loved ones to avoid Probate. The Trust document also contains most of the instructions for carrying out the estate plan after a person dies: who is in charge of winding up the client’s affairs, how and to whom assets will be distributed, backup plans as needed, and how to deal with possible disputes. Clients fund the Trust in various ways: by the document’s own language, by a separate written declaration that all of the client’s assets are intended to be in their trust, by deeds for real property, and by Pay-on-Death (“POD”) designations with financial institutions.
When to use: The Declaration of Trust is most important after the signer has died. However, if the signer is incapacitated, then sometimes the family will use the Declaration of Trust to deal with Trust assets.
Title of the person in charge: Trustee (usually the original signer), or Successor Trustee (if the signer is incapacitated or has passed away).
Will: When a person has a Trust, their will is like a backup parachute — it’s there in case of an emergency. Since the Trust takes care of all the details, it is extremely rare to use the will to handle a person’s affairs.
When to use: After the signer has died, and even then, only in the unlikely event that something unexpected has happened related to the Trust.
Title of the person in charge: Executor.
Durable Power of Attorney: This is the document that allows a third party to manage someone’s financial affairs if they are too ill to manage their own affairs, proven by a written declaration from the person’s doctor (sometimes two doctors), or a court order signed by a judge.
When to use: When the signer’s doctor(s) or a judge has stated in writing that the signer is too ill to manage their own affairs without the aid of a third party.
Title of the person in charge: Attorney in fact.
Advance Health Care Directive: This is the document that allows a third party to speak with a person’s doctor if the person is too ill to make their own informed medical decisions, as determined by the doctor who is treating them at the pertinent time.
When to use: When the signer’s doctor determines the signer is too ill to make their own informed medical decisions.
Title of the person in charge: Health care agent.
Nomination of Guardians: This is the document that clients with minor children use to nominate people to raise their minor children if needed.
When to use: When both of a minor child’s parents have passed away or are unable to care for the child.
Title of the person in charge: Guardian.