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This is Keith A. Davidson from Albertson and Davidson. In this video, I want to talk to you about the differences between Wills and Trusts. A lot of times people think that Wills and Trusts are the same thing, that they’re the same type of documents, and they really aren’t. Wills and Trusts are very different, and so let’s start with a discussion of Wills, and then we’ll talk about Trusts and you can see the differences between the two documents.

Wills are testamentary documents, and what that means is they only come into effect, they only actually are created, upon somebody’s death. Now you go ahead and create the Will and write it down and sign it prior to death, but it doesn’t operate until after death. For Wills, there’s a lot of what we call formalities that you have to follow.

To have a valid Will, you have to have it in writing. It has to be signed by the person who’s creating the Will, and a typewritten Will has to be witnessed by two witnesses, or it has to be in the testator’s own handwriting. That’s what we call a holographic Will. If you don’t meet those formalities when you create a Will, then the Will simply isn’t going to be valid. That’s something that is unique to Will’s. You’re not going to have that with Trust.

After somebody passes away, a Will cannot operate over their assets until you take that Will to court and you have the court admit the Will to probate. That’s where the court decides whether the Will is valid or not, and until the Will is admitted to probate, nothing can happen with that Will. You can’t administer it. You can’t manage the decedents assets. It has to go through this court process in order to operate and then the Will ultimately will dictate how the assets pass out of probate and to the beneficiaries who are intended to receive them. And that’s generally how a Will works.

A Trust is very different because most people create what we call a living Trust. In legal terms, we would call that an inter-vivos Trust, meaning that it’s created during your lifetime and it actually operates during your lifetime. So the Trustee of your living Trust can manage your assets, can make management decisions over those assets, and it operates even if you lose capacity. That’s different from a Will because the Will never helps you if you lose capacity, but a Trust does. And then after you passed the Trustee can administer that Trust without having to go to court.

Trust don’t require any court oversight in order to be administered. And in order to create a Trust, all you have to do is have something in writing and signed. You don’t technically even need to have it notarized, although most Trusts are notarized and they probably should be, but that’s not a legal requirement that they be notarized.

Trusts tend to be a lot more flexible because you can leave your assets to your children or your beneficiaries, and you can have all sorts of flexibility in how you leave your assets to them. So, you can leave something in a child’s Trust that holds their assets until a certain age, or you can leave something to your grandchild and also hold that until they reach a certain age. There’s all sorts of flexibility that you can build into your Trust that is much harder to do under a Will because the Will has to go to court and through the probate process in order to be administered.

So that is some differences between a Will and a Trust, and I think you’ll see that they’re very different documents.

You are on a plane and hit a good bit of turbulence, or the plane drops in altitude suddenly, and you think to yourself that you never did prepare your Will, so you send a quick text to a family member or friend setting out your desires should you not make it. Of course, most of the time you worried for nothing, but what if the worst happens, would your text be considered a valid Will?

Can you Text Your Will

It all comes down to one archaic little concept: formalities. Will formalities go back centuries to a time when last wills and testaments were originally taken by a priest on the person’s deathbed. Over time, the law created formalistic “safeguards” to ensure that the Will reflected the true intent of the decedent. And those formalities still exist today.

There are two ways to create a Will in California: (1) a handwritten Will where the entire document (or a substantial portion) is in your handwriting and then signed by you; or (2) a printed document that is signed by you and then signed by two witnesses. Neither one of these options is particularly high tech, in fact the handwritten will is about as far from a text as you can get (other than maybe writing on stone).

But things are changing. Just six years ago, California added Probate Code section 6110(c)(2) that allowed the admission of Wills that do not meet all of the formalistic requirements, provided there is clear and convincing evidence that the document was meant to be a Will. Even so, it would be nearly impossible to validate a Will that has no handwritten signature.

Text messages are not in your handwriting, they are not signed with an actual signature, and they are not witnessed by anyone, so a text does not meet any of the traditional definitions for a valid Will. This prompts the question of what is a writing? In many ways a text is the modern equivalent of a hand written note. It is typed by the person creating it and it is often “signed” with a digital signature or at least a typed out name. Shouldn’t that qualify for a handwritten Will?

That remains an open question in California. There has been case law in other states that holds that a typed Will could be enforceable provided you are able to prove that no other person had access to the decedent’s electronic account. In other words, we allow handwritten Wills because we know for certain that only the decedent wrote it. If you can prove the same concept for a text or email or whatever (tweet, Facebook post, Snapchat?) then you could establish an electronic message as a “handwritten” Will.

Unfortunately, there is no California case law on point yet. Isn’t that ironic considering we are home to Silicon Valley? As of this writing, you can text your Will all you want, but it probably won’t be valid as a Will. And yet, if you grab a napkin and write out a Will with a pen, then that is undoubtedly a Will. So before you leave home, do a proper Will, or at least jot something down on a notepad and then sign it. When it comes to your Will, low tech wins the day.

Is an oral promise to make a will or trust enforceable under California law? Contrary to what many believe, California law provides for the enforcement of oral promises to make a will or trust.

How does the promise to make a will or trust arise? Generally, a parent orally promises a child, a friend, or a caretaker some or all of their assets once they die, if the child, friend, or caretaker agrees to do something for the parent. The “something” can be anything of value, but usually takes the form of the child, friend, or caretaker taking care of the parent until the parent’s death.

But what if the parent didn’t get around to writing a will or trust that states the child, friend, or caretaker gets some or all of the parent’s assets after they die? Or what if the parent never intended to write a will or trust reflecting the promise to the child, friend, or caretaker? Can the child, friend, or caretaker enforce the now deceased parent’s oral promise to give them assets? The answer is ‘yes’.

California Probate Code section 21700, entitled “Contract to make will” has a provision that allows a person to establish an oral promise by establishing that there was an agreement between the parent and the child, friend, or caretaker that the parent would leave some or all of their assets to the child, friend, or caretaker after they died.

But this is where it gets a bit tricky. The procedural hoops one must jump through to make a an initial claim to enforce an oral promise to make a trust or will under California requires the following:

  • First, one has to pay attention to the applicable statute of limitations. The statute of limitations simply tells us how long we have to file a lawsuit to enforce an oral promise. The applicable statute of limitations for filing a lawsuit to enforce an oral promise to make a will or trust is one year from the date of death of the parent. So if the parent dies on January 1, 2014, then the child, friend, or caregiver would have one year (to December 31, 2014) to file an actual lawsuit to enforce the claim.
  • Second, it gets even trickier. Before one can file a lawsuit based on a broken promise to make a will or trust, one must file a “creditor’s claim” in the estate of the deceased parent. The creditor’s claim is not difficult to complete and file, but if one fails to complete this step, and one year passes from the date of death of the parent, one is very likely barred forever from filing an actual lawsuit to enforce the parent’s promise.
  • Third, it’s still tricky. What if nobody has opened the deceased parent’s estate with the probate court? Can one simply wait until an estate is opened, whether that’s one or two years from now, and then file their creditor’s claim? The answer is very likely ‘no’. The applicable statute of limitations states that to enforce an oral promise to make a will or trust, a lawsuit must be filed within one year of the date of death of the parent. So if the probate estate is not opened, then one needs to file a petition for probate to open the parent’s estate with the probate court, file a creditor’s claim, and then file a lawsuit—all before the one year passes from the parent’s date of death.

Each of these steps must be completed before one can have their day in court to prove a claim based on an oral promise to make a California will or trust. If the one-year statute of limitations (calculated from the deceased parent’s date of death) is blown for any reason, the claim to enforce the oral promise is barred forever from being heard. Thus, it’s very important for one to understand and meet the procedural loopholes required to make a claim to enforce an oral promise.

Keith A. Davidson describes in this video the basic requirements for creating a California Will and Trust. He refers to the basic creation elements as “formalities” and “intentionalities”, terms he uses in teaching California Will and Trust creation at Chapman Law School (which he borrowed from his own Trust and Will professor, Father O’brien (thank you Father O’Brien!), who taught at Loyola Law School in Los Angeles).  For those viewing this blog by email subscription, you can click on the title for a link to the video. 

How does your trust help you while you’re alive?  Many people think of trusts as death planning instruments–the type of thing that only operates upon your death.

But trusts have a critically important role to play while you are alive in the event you lose capacity.  People are living longer and the likelihood of being physically able, but mentally unfit is growing.

Without a trust plan in place, a person and his money cannot be easily cared for. In fact, a court supervised conservatorship is required to manage the person and estate of people who lose mental capacity, but have no other safeguards in place for the management of their money and personal care. 

Unfortunately, conservatorships are costly, time consuming and expose everything (and I mean everything) to ongoing court supervision.  In other words, your life becomes an open book and the court decides who will make decisions for you and then tries to oversee those decisions as best it can….yikes!

Since a conservatorship takes place in court, it provides a ready forum for lawsuits.  It’s not uncommon for a person’s children to fight over who should be named as the conservator.  And those types of lawsuits can be nasty business.

But a well planned trust can avoid all of that because under the trust terms, you appoint a successor to manage your money if you ever become incapacitated.  You should also have a Health Care Directive in place so that you can name someone to make your medical decisions.  With these two documents properly prepared, your personal care and your assets can be quietly and easily managed until you return to full mental capacity.

So the next time someone tells you that a trust isn’t necessary because it only takes effect after you’re dead and gone, think again.  That trust may save you a lot of time, money and public scrutiny while you’re still alive.

Back in March we offered to provide simple Wills to members of our community at no cost (you know, for free).  We decided to limit the program to 20 people per month to ensure that we were not overwhelmed by requests for free simple Wills.  And the response to our free Will program was overwhelming.  By “overwhelming” I mean only 3 people applied for the program.  Not three per month, just three overall.  I guess no one believes lawyers would do anything helpful for free.

We learned an interesting lesson.  People don’t trust free.  In fact, each of the three people who applied for a free simple Will asked the same question “why are you doing this?”  The truth is that we wanted to provide a service to our community.  Simple Wills are relatively easy for us to prepare and we can’t charge all that much for them to begin with, so why not just give them away and build some good-will in the process.

Of the 3 people who took advantage of our free Will program, each of them were very grateful.  But none more so than Ms. Betty Jamison who decided that she wanted to provide us some form of payment in return.  So she and her husband, James, cooked up a batch of barbecue ribs and a homemade lemon pound-cake.  She brought the food to our office and we ate like Kings.  I never knew law practice could taste so good.

I never wanted or expected anything in return for our free simple Will program, but I truly appreciated the home cooking.  Not just because it tasted delicious, but also because these people spent their time making us food.  And with cooking like that, we may have just stumbled onto a new way to bill for our legal services.

The manner in which assets are titled govern how those assets pass at death.  And this can override a disposition contained in a Will or Trust. All the effort people take to prepare a Will or Trust can be wasted if assets are not titled properly.  This is what I call the asset puzzle.

The first part of the puzzle is knowing the possible pieces (i.e., the way in which assets can transfer at death).  There are differing ways in which assets pass at death and it can be downright confusing.

For exapmle, life insurance passes by beneficiary designation. Whoever is named as the beneficiary on the form in the files of the life insurance company takes at death. It does not matter what the decedent’s Will or Trust state, the beneficiary designation controls. Therefore, even though a Will may be created that leaves assets equally to the decedent’s children, if only one child is listed as a beneficiary of a life insurance policy, then that one child takes the life insurance proceeds and the other children get none.

Same applies to assets titled in joint tenancy. Bank accounts, brokerage accounts, real property and cars all have the ability to be held jointly with another person or persons. When one joint owner dies, the other joint owners receive the property automatically without the need for probate. But this also means that the assets pass without regard to a Will or Trust. All too often I see children unintentionally excluded because they are not included as a joint tenants on the assets.

For some reason people think that if they have a joint tenancy over their assets one of two things will occur. Either (1) the child who takes that asset will share with the other children (even though there is no legal obligation to do so), or (2) the Will or Trust will override the joint tenancy or beneficiary designation (which is false, the beneficiary or joint tenancy overrides the Will or Trust).

This is where planning comes into the picture. Planning is NOT the act of simply having a Will or Trust.  A Will or Trust is a required part of planning, but that is just the beginning. The most crucial part of planning is looking at all the assets in the estate and changing title to those assets to conform to the plan.  This means filing a new deed so the house is in the Trust, for example.  Changing the title on bank or brokerage accounts, ensuring any beneficiary designations go to either the Trust or the proper individuals.  In other words, looking at the entire, big picture and taking all necessary action.  That’s truly the definition of planning.

By the way, it’s lack of planning that keeps lawyers fully employed because that is when litigation and probate ensue. And we lawyers make far more money on probate and litigation then we do on planning. So while people look at me skeptically when I plead with them to have an estate plan, I really should be pleading NOT to create a plan. So support your local lawyers, neglect your planning!

Fifty years ago, most assets passed from an individual who died to his or her family by way of Probate (by Will or Intestacy both of which require Probate). Probate is a strict, expensive and time-consuming Court process that must be completed before assets can ultimately being transferred to family members.

But today, we own assets differently than we did fifty years ago. Most of us have bank accounts, retirement accounts, life insurance, and perhaps Living Trusts. These four types of assets (or financial vehicles) constitute the core of the so-called “Nonprobate Transfers” or “Will Substitutes”, meaning each of these assets pass outside Probate if properly designated.

California law expressly allows these Nonprobate Transfer assets to pass outside the probate process, even though these assets do not comply with the formal requirements for execution of a Will (read more about the Formalities and Intentionalities of Will creation.) Accordingly, individuals can rely on beneficiary designation forms that identify who gets his or her bank accounts, life insurance, and retirement accounts at his or her death without regard to what a Will states. As a result, with proper planning, an individual’s entire estate can pass at death to his or her family members outside of the Probate system. In fact, this is one of the primary reasons why estate planners created Revocable Trust—to avoid Probate altogether.

Let’s take an example, Stewart owns the following assets:

  • a home worth $400,000;
  • a rental property worth $350,000;
  • two bank accounts totaling $60,000;
  • a retirement account totaling $500,000; and
  • life insurance with a death benefit of $1 million.

Stewart’s total estate is worth $2,310,000. If Stewart’s estate passes by a Will or Intestacy, it must go through the Probate system. The attorney’s fees on this size of an estate would result in fees of approximately $40,000 (read more on how Probate fees are calculated.)

On the other hand, Stewart’s entire estate could pass by way of Nonprobate Transfers (also known as Will Substitutes), as follows:

  • Stewart’s (i) home and (ii) rental property are owned by his Living Trust, which designates the beneficiaries of his home and rental property.
  • Stewart’s (i) bank accounts, (ii) retirement account, and (iii) life insurance have “beneficiary designation” cards filled out designating who gets these assets on Stewart’s death.

Now Stewart’s entire estate passes outside of the Probate Court process.

Ultimately, these types of Nonprobate Transfers (or Will Substitutes) function as a private system of transferring assets at death—usually requiring less time, fewer rules, and a lower cost than Probate requires.

When creating a California Will there are a few basic steps that must be met from a legal perspective in order for that Will to be legally valid.  In their simplest form, the two areas required for a valid California Will are the necessary “Intentionalities” and the required “Formalities.”

Intentionalities:

Intentionalities  evidence a person’s intent to create a Will.  Will creation requires intent—the person creating the Will (referred to as the “Testator” ) must intend to make a Will.  And there are a number of things that can undermine the necessary intent to make a valid Will.  A short list of such items include: lack of mental capacity, undue influence, fraud, and duress and menace.  The full list of intentionalitiesfollows:

       Intentionalities:

  • Intent to create a will
  • Capacity
  • Undue influence
  • Fraud
  • Duress and menace.

Formalities:

Formalities refer to the formal requirements for California Will creation.  For example, a Will must be in writing (no oral Wills are allowed), signed by the testator, and witnessed by two disinterested witnesses.  Alternatively, a hand-written Will can be valid if the material provisions are written in the testator’s own handwriting and signed—no witnesses needed (this is referred to as a “Holographic” Will).

       Formalities:

  • Written Will
  • Signed by testator
  • Witnessed by two disinterested witnesses or holographic.

Using these two areas of legal requirements, you can go down the list of Intentionalities and Formalities to determine if a Will is valid or not.  The lack of any one item may result in an invalid Will.  For example, a Will with all the necessary Intentionalities, that is printed from a computer and signed by the testator could still be invalid if it lacks the required two witnesses.  Conversely, a properly executed and witnessed Will could be invalid if the testator lacks mental capacity or if the testator is unduly influenced in making the Will. 

Does that mean Wills are easy to attack?  Not necessarily.  In fact, a vast majority of Will contests that make it to trial fail to succeed.  Of course, this could be due in part to the fact that many of the cases with troubling facts settle before trial.

Keep this list of Intentionalities and Formalities in mind as we submit further blog posts on the component areas—such as undue influence, capacity, fraud, etc.