In the U.S. alone, only one in three people has made any form of advance directive regarding end-of-life care, whether it be a living will or a living trust. Most people don’t understand the difference between a living trust vs living will because they both happen to be estate planning options.
However, a living trust is quite different from a living will, and they both serve entirely different purposes. You see, a living trust will cover about three phases of your life, while a living will will only cover what happens if you’re incapacitated.
Let’s look at the differences between the two at a much deeper level.
What Is a Living Will?
A living will is a document that allows a person to specify the kind of medical care and treatment they would like to receive in an end-of-life situation. For instance, if you have been diagnosed with a terminal illness or you lapse into an irreversible coma, your healthcare providers will check your living will to determine the most appropriate action.
A living will will allow you to clarify what you would like to happen and what you would not like to happen during a critical medical situation. In the document, you can specify things like whether you would want to be placed in a ventilator or resuscitated during an emergency. It’s also on the living will that you can specify whether you want your organs and tissues to be donated the moment you pass away.
The main objective of having a living will is to allow your family or the people responsible for taking care of you to know exactly what you want. A living will is quite different from an advance healthcare directive. With an advance healthcare directive, you would need someone to act on your behalf and make your medical decisions for you.
For instance, if you were involved in a car accident, your representative on the healthcare directive could make medical decisions for you. However, a healthcare directive could also include a living will.
What Is a Living Trust?
On the other hand, a living trust is a legal entity that allows a person to transfer the ownership of their assets to a trustee. The trustee, after receiving the assets, bears a fiduciary responsibility to manage the assets on behalf of the owner and according to their wishes. Also referred to as an inter vivos trust, a living trust takes effect during a lifetime, and it’s possible for a person to serve as their own trustee.
However, it’s necessary to have one or more successor trustees who can make decisions in case something happens to the owner. If you decide to write a living trust, you can either name an individual to act as your trustee or name a financial institution, such as a wealth management firm or a bank. Living trusts can be separated into different categories, which are revocable and irrevocable trusts.
Some of the types of assets you can include in a living trust include investment accounts, real estate properties, bank accounts, family heirlooms, individual securities, and collectibles. When you draft the living will, you will set the rules on how and when the beneficiaries will access the assets. For instance, if you have children, you can make it a requirement for them to get the assets once they finish their education or reach a certain age.
Revocable Living Trusts
A revocable living trust involves the transfer of assets but is not permanent as long as the owner is alive. This means when you get a living trust, it’s possible for you to add more assets, remove some, change beneficiaries, and change the terms of the documents and how the assets are managed. A lot of people prefer to have revocable trust because they offer flexibility during their lifetime and allow distribution of the assets when things change.
Irrevocable Living Trusts
An irrevocable living trust, on the other hand, is all about the permanent transfer of assets. An irrevocable trust does not allow any kind of changes to be made by either the owner or the guarantor. Once you create an irrevocable trust, it’ll be impossible for you to cancel or alter anything that you have established on the document.
Once you place assets, you have legally given ownership. The trustee will manage them and distribute them to beneficiaries upon your demise. It’s important that you find the best trusts attorney in your area to help make the right decision.
Living Trust vs Living Will: Which One Do You Need?
So, a living trust vs living will? There are several factors you need to consider when choosing between a living trust and a living will. The most important thing is your overall financial situation as well as your financial goals.
However, it’s essential for you to consider the benefits of each one depending on your situation. One of the most important things to consider is how useful the living will is to you.
Do you want to be subjected to any kind of treatment or is there any you would not like to receive? Some people prefer not to have life support or to live in a vegetative state.
A living trust, on the other hand, has several advantages if you have large estates. One of the significant benefits of a living trust is that your assets would not be subject to the probate process because there would be a part of your last will and testament. A living trust will also protect your assets against creditors in case you have any outstanding debts.
Additionally, only you will get to decide how your beneficiaries receive the inheritance. If you draft a revocable trust, then you can change it depending on your current living situation. It may also be possible for you to leverage the living trust to minimize estate taxes.
Living Trust vs Living Will: What They Have in Common
Regardless of whether you get a living trust or a living will, both of them share something in common, which means you can actually get both. In both situations, you will have people you trust making essential decisions for you.
When it comes to a living will, you will have a person making decisions about your health. When you have a living trust, you will have someone making essential decisions about your finances, especially your business.
Living Trust vs. Living Will: Should I Have a Will or a Trust?
Now that you know the difference between a living trust vs living will, it’s going to be easier for you to make a decision between the two. It’s possible for you to include both in your estate planning if they both make sense for your future plans. Find the best trust attorney and discuss how to plan your estate.
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