A living trust and a living will are estate planning documents with different functions. While a living trust is used to manage your property after you pass away, a Living Will lets you express how you want to be cared for if you become unable to make those decisions for yourself.
A Living Will operates differently than trust because it is an estate-reducing document and not an estate-enhancing one, as a trust is. Because of this, the two documents shouldn’t be considered substitutes for one another but instead as complementary ways to plan for the future.
Let’s dive deeper into what each of these documents is, their advantages, and some examples of when they should be used.
What Is A Living Trust?
A living trust is a legal document that lets you transfer control of your property to a trustee (which can be one or more people or an institution such as a bank). The trustee manages the property for your benefit of you, while you’re still alive, as well as any beneficiaries (who could be your spouse, children, parents, etc.) you name in the document.
Since a trust document has no effect while you’re alive, you don’t have to pay any taxes on the property. Not only that, but a trust document can help you avoid probate (more on that later), which is a lengthy and expensive process.
When you pass away, the trust document becomes binding and the trustee manages the property according to the terms of the trust.
What Is A Living Will?
A living will is a document where you state how you want to be cared for if you become unable to make those decisions for yourself. In this document, you let people know whether you want to be kept alive with medical care or whether you want medical care to stop if you are terminally ill.
A living will is different than a medical power of attorney, which gives someone the specific authority to make medical decisions on your behalf. While medical power of attorney lets you name the person you want to make these choices, a Living Will lets you express your wishes without naming an alternative decision-maker.
A living will is meant to be a backup plan for the times when you’re not capable of making decisions on your own behalf.
Why Use A Living Trust?
A living trust is an estate-enhancing document, which means it reduces the taxes and fees associated with passing away by transferring your property into a trust while you’re still alive. Since you are the owner of the trust, you don’t have to pay any transfer taxes when you put the property into the trust. And if you die while the property is in the trust, you don’t have to pay any taxes on it, either.
A trust document also lets you put someone you trust in charge of your property and your beneficiaries while you’re still alive, which means any changes to your trust can be easily made. In addition, a trust document takes care of many issues related to probate, which is a lengthy and expensive process for settling an estate.
Why Use A Living Will?
A living will is an estate-reducing document. It lets you state your wishes for medical care in situations where you might not be able to make the decision for yourself. If you become terminally ill or are unable to communicate your wishes for medical care, a Living Will can be used to reduce the cost of medical care by avoiding the need for a medical power of attorney.
If you have a living will, medical care providers will know your wishes regarding medical care even if you can’t communicate those wishes yourself. While medical power of attorney gives someone the authority to make medical decisions on your behalf, a Living Will lets you express your wishes without naming an alternative decision-maker.
When you have a living will, medical care providers will know your wishes regarding medical care even if you can’t communicate those wishes yourself.
When To Use A Living Trust?
If you don’t have a living trust, you’ll have to go through the costly and time-consuming probate process. While probate lets you name who you want to inherit your property and ensures that everything is distributed according to your wishes, it also delays when your beneficiaries can access your property.
If you don’t have a trust and you die, your property is distributed according to the laws governing probate in your state. This process can take months or years, during which your beneficiaries can’t access your property. Since a trust document transfers the property into a trust while you’re still alive, it avoids the probate process and lets your beneficiaries access the property much sooner.
When To Use A Living Will?
If you don’t have a living will, your medical care providers might be forced to make decisions about your care based on your medical power of attorney. Your medical power of attorney lets you name a person you trust to make medical decisions on your behalf, but it doesn’t let you express your wishes for medical care.
If you don’t have a living will, your medical power of attorney will come into play when you are unable to make medical decisions for yourself. In this situation, your medical care providers will have to comply with the wishes expressed in your medical power of attorney, even if those wishes aren’t in line with what you would have chosen if you were able to make your own decisions.
By having a living will, you can let your medical care providers know your wishes for medical care even when you’re unable to express them yourself.
Conclusion
A living trust and a living will are two different types of estate planning documents. A living trust is used to transfer control of your property to a trustee while you’re still alive, enabling you to avoid the costly and time-consuming process of probate at the time of your death. A Living Will lets you state how you want to be cared for if you become terminally ill or are otherwise unable to make medical decisions for yourself.
A living will is an estate-reducing document, which means it doesn’t reduce the taxes or fees associated with an estate as a living trust does. Because of this, the two documents shouldn’t be considered substitutes for one another but instead as complementary ways to plan for the future.
