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Wills and Trusts are vastly different types of documents.  They may seem similar in some respects, but they are more different than they are similar.

What is a Will?

For starters, a Will is a “testamentary” document meaning it must meet certain formalities to be a valid document.  All Wills must be in writing, signed by the testator, and witnessed by two witnesses to be valid California Wills.  Or you can create a valid holographic Will if all substantial terms are written in the testator’s own handwriting, and it is signed by the testator (no witnesses required for holographic Wills).  Those are the only two acceptable procedures for Will creation.  And California Wills are never notarized—notarization of a Will is meaningless.

What is a Trust?

Trusts can be oral or written (don’t try to create an oral Trust though, that is foolish).  Written Trusts must be signed by the settlor, but that’s all that is required.  No witnesses or notarization needed.  Of course, most Trusts are notarized to prove the person signing it was the named settlor, but that is not a legal requirement for Trust creation.

Testamentary vs. Living Documents

Furthermore, every revocable Trust created during a settlor’s lifetime is referred to as an inter-vivos Trust—meaning it was created during lifetime as opposed to being created at death the way a Will is created.  This is why Trusts are sometimes referred to a “living Trusts” because they are created during life.  You can fund assets into the Trust, and the Trust can control those assets right away.  You can have a third-party act as a Trustee to manage your assets if you like.  And that third party can follow the Trust terms in management and distributing Trust assets.  It all is happening right now in the present.

Wills, by contrast, never operate during life.  They are testamentary documents, meaning they only take effect after death.  And a Will is not officially recognized as a valid Will under California law until the court admits the Will to probate (meaning the court issues an order finding the Will valid).  That means every California Will must be admitted to probate to be determined valid and to be administered under the Probate Code.  Trusts, however, do not require probate to be valid or to be administered.  That means the Trust creator can die and the entire Trust estate can be administered and distributed to the named beneficiary without the need to open probate.  That saves time and money to the estate.

Trusts also provide flexibility by allowing you to include in the Trust document further subtrusts that can be created to hold assets for a spouse, children, or grandchildren.  For example, if you have minor children, then you can specify in your Trust that the children’s share shall be held in Trust until each child attains a certain age, such as twenty-five or thirty.  You can include provisions that allow the child to use their Trust funds for health or education until they attain the requisite age.  You could even keep a child’s share of the Trust estate in Trust for his entire lifetime if you believe he needs help managing money or making distributions.  A Trust can be created using just about any terms and provisions you want to include.

A Will, however, has less flexibility.  You can specify that assets must be distributed from your probate estate to a Trust for a child’s benefit, but the Will has to go through probate before the child’s Trust can be created.  This is referred to as a “testamentary Trust” because it is not created until after death when the Will is submitted to probate.  As for the probate estate, it must be closed within a few years at most, so you either have to give people their assets outright or create a testamentary Trust to hold the assets after the probate closes.  Either way, the process is more cumbersome to administer after death.

Because Trusts can be created during a lifetime, they can also be used to help manage your assets if you lose capacity.  Most Trusts provide for a successor trustee to step in and manage your financial affairs in the event you lose capacity.  For example, if you are in an accident and are in a coma for a number of months, your successor trustee can manage your assets for you.  You cannot do this with a Will because the Will does not even come into existence until after your death.  So if you become incapacitated a Will does not help you manage your finances.

A Will is a “testamentary” document meaning it takes effect over  assets held in your individual name after death (that is, anything that is not titled in a Trust, joint tenancy, or passing by beneficiary designation).  Trusts don’t work this way, a Trust can only control assets titled in the name of the Trust.  For this reason, Wills can be a catchall device to ensure all assets will be managed either under your Trust or Will after death.  And many estate plans will include both a Trust and a so-called pour-over Will that names the Trust as the sole beneficiary.  This ensures that any assets held in a person’s individual name are transferred to the Trust after death.

The bottom line: Trusts are far more versatile instruments that can help you plan for life and death in ways a Will simply cannot do.

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“US Recession Probability Reaches 96 Percent Heading into Q4” 

The Conference Board₁

Is A Recession Coming?

While a recession has not been officially declared, the US GDP shows spending has slowed and prices have increased. Many national experts now say a recession could happen sometime in 2023.

What Is a Recession?

A recession is defined as two consecutive quarters of negative growth meaning the average U.S. consumer is spending less.

When demand peaks, then starts to decline. Excessive supply of goods and services aren’t consumed, companies produce less and downsize. The end result is people lose purchasing power causing a downturn in consumption.  This is the recipe for recession: 

Triggering Factors

There are many factors which need to a recession:

• Inflation

• The Fed raising interest rates
• Russia and Ukraine conflict
• Still suffering from the bottleneck of the COVID pandemic
• Mounting Student loan debt

The chances of a recession ticked higher last week, driven by the Federal Reserve’s latest rate hike and hawkish forward guidance.

How bad could the next recession be?

However, Morgan Stanly feels that this recession won’t be as severe as the Great Financial Crisis of 2007-2008:

Some Aside from the pandemic-induced 2020 recession, other recent recessions have been credit-driven, including the Great Financial Crisis of 2007-2008 and the dot-com bust of 2000-2001. In those cases, debt-related excesses built up in housing and internet infrastructure, and it took nearly a decade for the economy to absorb them.

By contrast, excess liquidity, not debt, is the most likely catalyst for a recession today. In this case, extreme levels of COVID-related fiscal and monetary stimulus pumped money into households and investment markets, contributing to inflation and driving speculation in financial assets.

The difference is important for investors. Historically, damage to corporate earnings tends to be more modest during inflation-driven recessions. For example, during the inflation-driven recessions of both 1982-1983, when the Fed raised its policy rate to 20%, and 1973-1974, when the rate reached 11%, S&P 500 profits fell 14% and 15%, respectively. This compares with profit declines of 57% during the Great Financial Crisis and 32% during the tech crash.

What Can You Do to Prepare?

Know where you are with your money.  Budget.  Cut costs where you can.  

If all else fails, bankruptcy is a fresh financial start for people who just need a do-over.  We can save your home, your retirement accounts, in many cases, all of your other assets while we wipe out your credit card and your other debt.

¹The Conference Board is the global, nonprofit think tank and business membership organization that delivers Trusted Insights for What’s Ahead™. For over 100 years, our cutting-edge research, data, events and executive networks have helped the world’s leading companies understand the present and shape the future.

Related Articles:

https://www.conference-board.org/topics/recession/US-recession-probabilities-reach-96-percent#:~:text=The%20Conference%20Board%20predicts%20a,Federal%20Reserve’s%20interest%20rate%20hikes.

https://www.morganstanley.com/ideas/recession-2022-potential-how-bad

https://www.forbes.com/advisor/investing/are-we-in-a-recession/

https://time.com/6201205/what-is-a-recession-2022/

https://www.cnn.com/2022/10/02/business/global-recession-fears-explained

https://www.cnbc.com/2022/07/20/economists-chance-of-a-2022-recession-is-rising-with-inflation.html

https://www.usnews.com/news/business/articles/2022-09-29/explainer-how-do-we-know-when-a-recession-has-begun

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What Debts Are Discharged in Chapter 7 #

• Car loans (creditor will retain lien)
• Credit Cards
• Deficiency balances on homes, cars, boats, etc. following foreclosure or repossession
• Medical bills
• Mortgages (creditor will retain lien)
• Most lawsuits

What Debts Are Not Discharged by Chapter 7 #

• Debts for personal injuries caused by the debtor operating a vehicle while intoxicated
• Debts incurred to pay nondischargeable taxes
• Debts not properly listed in the schedules
• Domestic support obligations such as spousal maintenance or child support
• Most student loans
• Most taxes (some older income taxes may be discharged)
• Reaffirmed debts

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Because of repeated COVID closures or otherwise, if your sole proprietorship is struggling with mounting debt, you can file bankruptcy in one of two ways, Chapter 7 or Chapter 11. Once bankruptcy proceedings are started, creditors cannot attempt to collect debt from you or the business until the bankruptcy process has ended.

Chapter 7 bankruptcy can eliminate most or all of your and your business’s debts. Yet, after a chapter 7 bankruptcy, the business is unlikely to continue. You will be allowed to keep some “tools of the trade.”

Chapter 11 bankruptcy is used by people who want to continue operating a business and repay creditors throughout the court approved payment plan. Property is not sold, but the debts must be eventually repaid.

More on other types of business bankruptcy in later articles.

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Car loans consist of two agreements: (1) a promissory note where the lender pays a sum of money to the seller and the borrower promises to pay it back, and (2) a security agreement where the borrower promises the lender a security interest, which in this case is the car. If the borrower doesn’t pay, the lender can repossess the car and sell it to get back some of what’s owed on the loan.

Redemption means paying the lesser of either: fair market value of the car or the outstanding balance. Redemption funding is sometimes available.

Reaffirming the debt is promising the lender you’ll repay the original loan or renegotiating the loan in exchange for keeping the car. The lender will have to agree to terms. You will sign the agreement and file it with the bankruptcy court.

Your attorney may approve the reaffirmation agreement, or the judge will decide if the agreement is in your best interest.
The judge will do this by weighing your income against the amount owed on the car and its value.

Surrendering the car is just what it sounds like: giving the car back.

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After bankruptcy, it’s common for people to receive numerous offers in the mail.
The reason for this is after filing a Chapter 7 bankruptcy, a person cannot file another for eight years. Some lenders consider that a good financial risk. After bankruptcy, people should look for credit cards without unnecessary fees. Some of the post-bankruptcy credit card offers have higher interest rates. Also, try to pay off the balance in full every month to avoid interest charges.

After bankruptcy, take steps to rebuild your credit. Once a year, request a free copy of your credit report from each of the three major credit bureaus at AnnualCreditReport.com. Check to verify that delinquent accounts which were part of the bankruptcy are no longer reflected on credit reports. These will needlessly deflate your credit score. Make sure you report and repair errors. Your credit score should improve.

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I know some people who have generally had a good experience with debt consolidation. The promises are the debt will be repaid sooner, simplified finances, lower average interest rates (credit cards of 18.7% v. 10.07% APR in debt consolidation), and a fixed repayment schedule. But please be careful. I have had a lot of clients who have come to me after paying tens of thousands of dollars to debt consolidation companies only to have to seek bankruptcy protection after paying all that money. Debt consolidation won’t solve the underlying problem. There are some upfront costs, including loan origination fees, balance transfers, closing costs, and annual fees.

The bottom line is for each of my clients who had tried debt consolidation before bankruptcy, the client would have been better off seeking bankruptcy protection sooner. They could have been starting fresh financially instead of emptying their proverbial piggy banks to service mounds of debt for years.

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