How Wills, Living Wills, & Living Trusts Differ
An Explanation of a Last Will, a Living Will, and a Living Trust
Aug 31, 2009
A "Last Will and Testament," a living will, and a living trust are important tools in estate planning (the planning for the future management of the assets in a person's estate in the event of death or incapacitation). Though people often confuse these documents, they actually all serve very different functions.
Below is an explanation of each legal document, including some of their pros and cons. Anyone who is planning an estate, however, should be sure to consult a qualified professional before deciding which documents to use.
The Difference Between a Last Will and a Living Will
A "living will" is not the same as a "Last Will and Testament." A living will, which is known as a Directive to Physicians, is basically a directive to doctors to either apply or withhold life sustaining treatment in the event that one is either terminally ill or experiencing an irreversible condition that will require incessant life support. In a living will one will also name the person who will act as a Medical Power of Attorney. This person will act in the estate owner's name and be authorized to receive private medical information. Finally, this document will allow the estate owner to set limits on hospital, medical, and funeral costs- all of which can easily drain an estate.
What is a Last Will and Testament?
A Last Will and Testament (known simply as a will) is a legal document signed in the presence of witnesses that both describes how one wants personal assets to be distributed when upon death and names guardians for any children who are still minors. A will also names the person who will administer all personal affairs (known as an Executor) upon the estate owner's death.
In the event of death, the estate owner's property will be subject to probate proceedings. Probate is a legal process through which the will is activated and the Executor receives the legal credentials to administer the affairs in the deceased person's estate. Dying without a will can lead to a costly, time-consuming process for an estate owner's heirs and it means that the estate owner will have no say over who gets assets.
The Pros and Cons of a Will
There are many benefits to creating a will:
- Will's are relatively easy and inexpensive to prepare.
- The estate owner can decide how assets will be distributed and managed.
- There is court supervision to handle any beneficiary challenges and creditor disputes.
Wills also have several drawbacks:
- Once in probate, a will becomes a public document
- If the will is challenged in court by either the beneficiaries or creditors, then the probate process can be both costly (in terms of legal fees) and time-consuming (the process could drag on for years).
- Out-of-state property requires probate proceedings in the state in which it resides.
- Once a will is created it is irrevocable.
What is a Living Trust?
Many people consider a living trust to be a good alternative to a Last Will and Testament. Similar to a will, a living trust details estate distribution upon the death of the estate owner. But that is where the similarity ends. Unlike the will which is activated in the event of death, a living trust operates both during and after the lifetime of its creator. In the case of a living trust, the estate owner names a person (called the trustee) to manage his or her assets, and these assets will actually be transferred to the name of the trustee.
Depending on the situation, a living trust’s assets are usually managed at the onset by the estate owner unless he or she becomes incapacitated in some way. In such a case, a living trust can also work similar to a living will. In the event that the estate owner would become disabled or incapacitated, the trustee would be responsible for handling the financial obligations and implementing the estate owner's personal wishes regarding life sustaining treatment and life support. When the estate owner eventually dies, the trustee then enacts the provisions as set out in the trust to manage and distribute the estate assets.
The Pros and Cons of a Living Trust
The benefits of a living trust include:
- There is no probate process.
- The information and proceedings in a living trust is private.
- The estate owner manages assets for as long as he or she is capable.
- A living trust can be ammended.
Living trusts also have several drawbacks:
- It is more expensive and complicated to set up than a will.
- A trust requires more time and energy to manage.
In short, a living will, a "Last Will and Testament," and living trust all all important documents when it comes to estate planning, but they each serve different functions and situations.
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