What's the Difference Between a Last Will and a Living Trust?

Before visiting your estate lawyer, it's a good idea to spend some time learning about the various documents and procedures involved with estate planning.

An essential topic to every estate plan is probate. Probate is a court-supervised procedure for transferring the legal title of your assets after death to your beneficiaries. The probate process involves:

Proving to the Court that a Will exists and is valid. Appointing a legal representative with authority to act on behalf of the estate. Identifying and appraising the property of the estate. Paying debts and taxes. Distributing the remaining property according to the beneficiaries.

Probate proceedings are public records and typically last several months. Any property listed in your name that does not automatically transfer upon your death, is considered probate property. For this reason, a last will goes to probate and a living trust does not.

You may have been told that a trust is more ideal than a will since it can avoid probate. However, there are other details to consider when choosing an estate plan.

Last Will and Testaments After a will is drawn up, it must go through a formal legal procedure called executing the will. This requires witnesses to the signing of the will. A will is put into effect only upon death, with the provisions controlling all assets subject to probate. Any assigned accounts are not subject to probate and will not be distributed under the terms of a will. Non-probate property such as life insurance, retirement plans, and joint tenancy accounts will pass directly to the named beneficiaries by the institution holding the account.

When it comes to costs, wills are usually cheaper to create, but more expensive down the road when heirs have to manage the estate. A will provides little assistance for asset management while the person is living. If a person becomes physically or mentally incapacitated, the court must appoint a guardian to manage the estate. Even with a good power of attorney, this process is usually burdensome and expensive.

Every state has its own variation of laws that pertain to last wills. When a will is clearly laid out, the accepted rule is that if a will was valid in the state it was made, it remains valid even when moving to a different state. However, if there are any uncertainties or exclusions, the will is usually interpreted by the laws of the state of residency. Thus, other state-specific documents should be created in the new state after each move.

In order to change or add anything in a last will, a codicil must be filed. A codicil is an amendment which must be executed with the same formalities as the original will. Sometimes it is simpler to draw up a new will instead. The original will and any codicils must be presented after death.

While a last will must go through probate, there are simpler types of probate depending on size and type of assets and whether or not there is any contest to the will.

Living Trusts A living trust is a contract between the creator of the contract and the trustee who agrees to hold assets for the beneficiaries. Each trust has three necessary parties: grantor, trustee, and beneficiary. Typically, one person is all three. The grantor retains all rights to manage the trust while alive and legally competent.

Any terms and conditions can be added, since living trusts are contractual; and because there is much less variation in state trust laws, they can be carried to different states without significant problems. Assets can be added and removed at any time without any tax penalties. As with other contractual arrangements, trusts are not usually required to become public knowledge.

Living trusts are more expensive to create and maintain, but leave fewer burdens on a spouse, children or other heirs later. If the grantor becomes incapacitated, the living trust names a successor trustee to take over and continue to manage the trust. Asset management as a successor trustee is generally much simpler than through the use of a power of attorney.

At the death of the grantor, the terms of the trust define who inherits the trust. The assets can be distributed to the beneficiaries in any manner the grantor chooses. The distribution is private and does not need any court supervision, so the successor trustee can immediately access any accounts held in the trust.

A living trust is designed so that the assets are not a part of the probate process. However, this only works if the provisions are properly put in place during life.

Estate Planning Both wills and trusts are effective tools to manage an estate during and after life. There are no "one size fits all" plans, so it's important to discuss your options with an estate lawyer.

Tips in Making a Family Tree for Your Estate Plan   Retirement Planning: It's About More Than Just Finances   Preparing and Writing Your Own Living Will   How to Include Your Pets in Your Estate Plan   Planning For Your Personal Effects   How to Avoid a Guardianship   

Estate Planning - Living Wills and Durable Powers of Attorney For Health and Finance

Estate planning frequently involves more than just having a Will. Living wills as well as durable powers of attorney for health care and finance protect your estate in case your are incapacitated, but not deceased.

A living will permits you to express your wishes regarding resuscitation and life maintaining measures in the event you later become incapable of communicating your desires. It can help you try to avoid what some believe to be an undignified existence by allowing you to decline medical treatment, food, and water if these things are "artificially" keeping you alive. The choice is yours to make and physicians will honor your wishes if the proper documents are submitted.

A durable power of attorney for health care, on the other hand, allows you to appoint another person to make decisions for you regarding your medical care in the event you cannot. This power is broader than the living will. It, too, covers situations where you may be terminally ill and need resuscitation or other life maintaining measures to stay alive. Your agent, or attorney-in-fact, can decline these treatments if you give them that power. It also applies to situations where a health care decision is required but you cannot make that decision yourself (i.e., you are unconscious as a result of injury). Your agent could authorize or decline medical treatment on your behalf.

A durable power of attorney for finance allows you to appoint another person to make decisions for you regarding your real and personal property. This power is broad and covers situations where you are terminally ill or unconscious as a result of injury, but still living. Your agent, or attorney-in-fact, can manage your financial affairs as you so wish.

If you decide to create either a living will or a durable power of attorney for health care and/or finance, you will need to consider several things before you complete the documents. You will have to provide the name and contact information for the individual(s) that you nominate to make decisions for you in the event that you cannot make them.

Be sure to inform the person you nominate of your wishes. You can permit or refuse to permit donation of your organs for transplant. You can also permit or refuse to permit donation of your body for scientific or educational purposes. Some people wish to spend their last days at home rather than in a hospital. Some people wish to nominate one person to act as their attorney-in-fact for health care and another for their finance. You can express your wishes regarding these issues in these documents. Finally, you can express your wishes about funeral arrangements.

Please consult with an attorney if you desire to execute or have questions regarding estate planning documents.

Tips in Making a Family Tree for Your Estate Plan   Retirement Planning: It's About More Than Just Finances   Preparing and Writing Your Own Living Will   Planning For Your Personal Effects   How to Avoid a Guardianship   

The Importance of Choosing a Quality Living Will

Most of us have heard of a "Living Will." It is document in which you write out your health care wishes, including any desires you may have about the use of "aggressive and/or invasive" life-sustaining medical treatment. It is to be used if questions arise about what kind of medical care you would or would not want, in situations where you are too ill or injured to make your wishes known.

A "medical power of attorney" or "health care proxy" document is somewhat different. It allows you to name someone you trust to make health care decisions for you, if you are ever too ill or injured to make those decisions for yourself. He or she must always consult your Living Will, and can only make decisions in your behalf that you have not already made for yourself.

The term "Advance Directive" is an umbrella term, and it refers to both Living Wills and Medical Power of Attorney documents.

Naming someone as an "agent" (or as a proxy, surrogate, or representative decision-maker -- the terms vary according to the laws in your state) can be very important. Although most states allow family members to make health care decisions for their loved ones, it is often difficult for families to agree on what should be done.

Sometimes their desires might supersede your own. Further, you may find that the person you trust most, or the one you feel is most capable, is not a family member. Consequently, it is usually best for you to name the person you want making these decisions. Although he or she can still consult with others, the final decision is his or hers alone. This can avoid the distress of disagreements, or even critical delays in medical care at times of contention.

Now that you know the purpose of a Living Will and a Medical Power of Attorney (or proxy appointment document), you need to consider the kind of forms you should use.

Most people simply select the standard form available in their state -- often called a "statutory" advance directive. Many of these forms are available for free on the internet, and they are usually quick and easy to complete.

However, a large body of research has identified many short-comings in these documents. Virtually all of them have been found to be overly simplistic, confusing, laden with legal jargon, and so vague and unclear in the kinds of terms they use that even physicians themselves are often unsure how to apply much of what has been recorded in them.

Sometimes these documents may even be biased in ways that inhibit or outright limit an individual's ability to fully express their personal wishes. For example, one legal research group found their state's advance directive to be "more protective of provider liability than patient rights" (see: Tyminski, MO. Journal of Law and Health. 2004-2005;19(2):411-49).

Another research group emphasized that, "...the development of statutory forms occurs in the legislative arena, [so] their content is the result of a political rather than a 'scientific' process," and because of "political compromise,...many of the forms ultimately passed by the legislatures are not optimal from a consumer perspective" (see: Hoffmann, DE; etal. Journal of Law, Medicine & Ethics. 1996;24(1)(Spring):5-17). They concluded by noting that the use of biased, confusing, and vague documents was potentially "dangerous," as these documents are typically used to address life-sustaining medical care wishes.

The American Bar Association has agreed, and has emphasized that the "statutory advance directive is not necessarily the exclusive, or even the best, pathway for individuals to follow," and they suggest alternative documents in situations where the existing content is too limited (see: Patient Self Determination Act State Law Guide, 1991, page 18. Government printing office, Washington, DC).

There are a great many alternative advance directive documents available, and many can be obtained via the internet. For example, the National Healthcare Decisions Day website (http://www.nationalhealthcaredecisionsday.org/takeaction/advance_directive) offers links a variety of such documents.

Regardless of the form chosen, a quality living will is crucial. It should guide and assist individuals in fully and clearly expressing their health care wishes. When a comprehensive array of options are presented, it can inspire important thinking, discussions, and decisions far more effectively than trying and "brainstorm" them all alone.

In addition, it aids an individual in fully writing out instructions that are important. Wishes that are not written down are very difficult to even remember, much less to follow-up and honor.

It should be emphasized that an appointed representative can only make quality decisions if useful and complete information is available. Otherwise, he or she may be forced to chose according to his or her personal preferences, instead of being able to determine what you might actually want. Further, should anyone question the decisions of an appointed representative, it is ideal when he or she can point to specific evidence of one's wishes whenever possible.

Certainly every adult should complete an advance directive. But, it is also important that the documents chosen are well crafted and highly effective for the important purposes intended.

Tips in Making a Family Tree for Your Estate Plan   Retirement Planning: It's About More Than Just Finances   Preparing and Writing Your Own Living Will   Planning For Your Personal Effects   How to Include Your Pets in Your Estate Plan