Planning for Young Families – Need a Will, a Trust, or both?
Greg is 37 years old and works as a firefighter. He is married to Amy, who is 34 years old and works as a local teacher. They have been married for 12 years, and they have two young children. Greg and Amy own a home with a decent size mortgage. Aside from the home, cars and furniture, they don’t have many other assets. What type of estate plan do they need and why do they need one?
At minimum, they need wills and maybe a trust. Under California law, if you die without a will, state law will kick in and make decisions for you as to who gets what, which is one of the primary goals of estate planning. Another major goal for young families is identifying a guardian for their children if both parents die. For Amy and Greg, it is very important to identify a guardian for their kids because if they don’t, and they die – the court will make the decision. This means a judge having to decide who the guardian is instead of their own parents. Not an ideal scenario.
So, Greg and Amy need a will to identify a guardian for their children. In the will, they will name their beneficiaries – which will most likely be their children – and name the same person they name as guardian as executor (or administrator) of their estate so that person will have access and control of their money to take care of the kids in the event of their death. So why would Amy and Greg need a trust?
A “living” or “revocable” trust is one that can be revoked after you execute it. Many families choose to execute a living trust in addition to their wills. Why? Because a trust can avoid what’s called “probate.” Probate is the legal process where the will of a dead person is accepted and handled by a court, or where a court is involved because a person dies without a will. In other words, if you die without a trust, you are not going to avoid the court getting involved in your estate plan. Instead, you are going to subject your estate and your beneficiaries to additional costs and time dealing with the courts and attorneys when you could have sidestepped the courts getting involved by using a trust. With a trust, the person you identify as your trustee will handle the administration of your estate after you die without involving the courts. You will likely name the trustee as the same person you named as your executor for your will.
If you execute a trust, why do you still need a will? You need a will too because any property that is not contained in the trust (such as inheritance that you receive after you execute the trust) will be captured through your will and go to the beneficiaries identified in your will. In this event, probate will still be required but the people you identified as beneficiaries will get their money or property versus the courts having to identify who gets what because you died without a will. This will is commonly referred to as a “backup” will.
So to recap, Amy and Greg have a couple of options. One, they can both prepare wills, which will handle their basic needs, or two, they can both prepare wills and a living trust, which will have the main advantage of avoiding the cost and time associated with the probate process should they both die. The reason they might go with the first option is because preparing a trust generally costs more and requires extra steps, for example, re-naming various assets in the name of the trust (such as transferring your home into the name of the trust so it becomes a trust asset governed by the terms of the trust). Some young married couples will wait to execute a trust later in life. Note that your estate plan should be reviewed periodically (every four or five years) and updated if necessary, or updated as soon as you have any key changes that need to be made. Also note that a trust can be updated or amended pretty easily as changes need to be made.
This article is not exhaustive, does not discuss other types of trusts (for example, irrevocable trusts), or all elements of a complete estate plan, which would likely entail preparation of advance healthcare directives and powers of attorney. It merely discusses general principles pertaining to estate planning based on a simple hypothetical. The information contained in this article is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Accordingly, the information in this article is provided with the understanding that the authors and publishers are not herein engaged in rendering legal advice. As such, it should not be used as a substitute for consultation with an attorney. Before making any decision or taking any action, you should consult a licensed attorney.