Assessor Prang Explains the Difference between a Will and a Trust

residential appraisal reportEveryone has heard the terms "will" and "trust," but not everyone knows the differences between the two. Both are useful estate planning devices that serve different purposes.

One notable difference between a will and a trust is that a will goes into effect only after the death of the party, while a trust takes effect as soon as it is created. A will is a document that directs who will receive a property upon death, and it appoints a legal representative to carry out these wishes. By contrast, a trust can be used to begin distributing property before death, at death, or afterwards. A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm) called a "trustee" holds legal title to property for another person called a "beneficiary." A trust usually has two types of beneficiaries: one set that receives income from the trust during their lives. and another that receives whatever is left over after the first set of beneficiaries has died.

A will covers any property that is in an individual’s name when he/she dies. It does not cover property held in joint tenancy or in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. In order for property to be included in a trust, it must be put in the name of the trust.

Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid and the property gets distributed the way the deceased intended. A trust passes outside of probate, so a court does not need to oversee the process, which can save time and money. Unlike a will, which becomes part of the public record, a trust can remain private.

Wills and trusts each have their advantages and disadvantages. For example, a will allows one to name a guardian for children and to specify funeral arrangements, while a trust does not. On the other hand, a trust can be used to plan for disability or to provide savings on taxes. Please consult an attorney for how best to use a will and a trust in estate planning.

 

NOTE: This information is not intended as a complete guide regarding property tax laws. Information here has been derived in part from written and oral opinions from the California State Board of Equalization.