The Difference Between a Living Trust and a Living Will
A living trust holds and protects your assets while you're alive and passes them on to your designated heirs when you die. A living will makes your wishes regarding life prolonging medical procedures known to your family and health care providers. Both are legally binding documents that ensure your wishes are carried out when you're incapacitated and unable to speak for yourself.
When you establish a living trust, all your assets (bank accounts, stocks, real estate, etc) are put into the trust. The trustee administers your property for your benefit during your lifetime and transfers your assets to your beneficiaries when you die. Most people name themselves as trustee so they retain full control of their assets.
Why go to the expense and trouble of a living trust? Isn't a will sufficient? You may need both. Unlike a will, a living trust avoids the time and cost of probate. Probate can take many months. Court and attorney fees can eat up 5% of the estate. A living trust ensures that more ends up in the hands of the people you want to inherit.
A will makes certain that any titled assets not included in the living trust at the time of death go to your heirs. A simple provision in your will can transfer these assets into your living trust. Any such assets are subject to probate.
A living trust also protects your assets if you are incapacitated. Control passes to your chosen successor trustee who will manage your assets for you until you are able. A living trust can be a double edged sword because the trust operates without court supervision. It's critical that you designate a trustworthy person as your chosen successor.
A living will states your wishes for end-of-life medical care and lifts a huge burden from your family's shoulders during a time of great stress. A living will usually needs a doctor's certification that you are either terminally ill or not expected to regain consciousness. A living will is only used when your ultimate recovery is hopeless.
Situations may arise when you are incapacitated, but not to the degree that would put your living will into effect. A health care power of attorney names and empowers a person to make health care decisions for you when you are unable to do so. You may also want to prepare a Do Not Resuscitate (DNR) statement to supplement your living will and health care power of attorney.
Preparing for the end of life isn't easy, but it's necessary. Be sure your family knows about your living trust and living will and where to find them. When you plan ahead, you'll be sure your wishes will be carried out and your family taken care of at a time of great emotional upheaval.
