Living Trusts Versus Living Wills: Which One Is Right for You?
Estate planning — the process of determining how to manage a person's assets if they become incapacitated or die — makes it easier to pass on assets to heirs. Two methods of estate planning that people often confuse, due largely to their similar names, are living wills and living trusts. While they may sound alike, and while both are used to dictate how assets are handled following certain life events, there are some key differences to be aware of before choosing to utilize one or both.
What Is a Living Will?
A living will is a legal document stating what needs to happen with a person's assets and how to deal with their end-of-life medical treatment in the event that they have lost the ability to make those decisions on their own, meaning they become incapacitated. This includes things like what decisions should be made about medical procedures and medications. The document might also outline whether or not to prolong their life if they become unconscious or enter a vegetative state and can't tell the doctor what to do regarding their own care.
For instance, imagine that your doctors have determined you’re in an irreversible coma or are no longer lucid and can’t understand potential healthcare decisions you’re required to make. A living will outlines considerations like whether you want to be placed on a ventilator to prolong your life or if you want to be resuscitated if your heart stops.
A living will also states what you want to happen if this type of situation occurs, and it’s written while you’re of sound mind to carefully consider your decisions so doctors and other professionals know these are your valid wishes. Because incapacitation and similar situations can happen to anyone, living wills are drawn up by all kinds of people. However, people who have been diagnosed with a terminal illness or are nearing the ends of their lives often decide to draw up living wills.
One variation on the living will is called an advanced directive. This is a legal document designating a specific person to make healthcare decisions for you if you can't make them on your own. Instead of deciding ahead of time what to do in the case that you’re unable to make end-of-life decisions on your own — as in a living will — an advanced directive allows you to choose someone you trust to make them for you. In either situation, you get to decide in a thoughtful and fully conscious state how to deal with sensitive end-of-life situations.
Unlike a standard will, a living will only covers the stage of life when a person is approaching death or is incapacitated. It goes into effect once a person is medically deemed unable to communicate, even though they’re still alive. The moment they regain communication abilities, if that happens, the authority of the living will ends.
What Is a Living Trust?
A living trust is a legal document stating how a person's (called a grantor) assets are managed while they’re alive. Its purpose is to simplify the distribution of the grantor’s assets upon their death. It transfers ownership of their things into the trust while the grantor is still living and designates the people who inherit these assets once the grantor has passed away.
Living trusts can include almost anything. Many people place into trusts their valuable assets like real estate property, bank accounts, virtual assets, vehicles, precious jewelry and fine art. Living trusts are most commonly used by people who have a lot of money and valuable assets to deal with in the first place.
The person whom the grantor puts in charge of managing the trust is called the trustee. The grantor is the original owner of the items in the trust, but the trustee can make decisions about how they’re handled, such as choosing to invest certain funds if the trust allows them to do so. It’s also not uncommon to assign a successor trustee — a person who steps in to manage the trust if the trustee becomes unable to do so.
In looking at these estate planning tools, it’s also helpful to understand the difference between a revocable and an irrevocable trust. Revocable trusts, the more common type of trust, can be changed by the grantor at any time. While it’s not necessarily a simple process to change a revocable trust, it is possible. Most people choose the revocable option because of its flexibility.
An irrevocable trust is much more difficult to amend, even by the grantor, once the paperwork is notarized because the grantor effectively gives up all ownership of any items placed in the trust. There are a few cases in which this type of trust can be modified, but the circumstances often have to be somewhat remarkable to allow the trust to be revoked. Once a grantor dies, a revocable trust automatically becomes an irrevocable trust.
Overall, a living trust is meant to simplify the process of managing the belongings and affairs of a person who’s nearing the end of their life in a way that provides a smooth transition of their assets to their heirs. The idea is that the grantor still lives out their life with their assets according to their own wishes. However, if they do become unable to make key decisions on their own, the living trust becomes important.
Choosing a Living Will Versus a Living Trust
Living wills and living trusts have some major differences not previously outlined. Both have benefits and drawbacks, so deciding which one is best for your situation can differ depending on individual circumstances.
To start with, a living will is a public document, while a living trust is not. This means a living trust safeguards privacy against anyone who might attempt to gain access to sensitive details about assets. Also, while filing a living will and filing a living trust both involve attorney fees, a living trust can eliminate costs associated with probate. Probate is the process of a court and estate executor transferring ownership of a deceased person’s assets to heirs, and it can be an expensive ordeal. So, a living trust can help grantors and beneficiaries save money.
A living will typically involves less paperwork and time than a living trust. Additionally, a living will has no impact on your property and assets while you're still alive. It only comes into effect when you become incapacitated. Living wills can make things easier on a person’s family, both emotionally and financially.
It seems that living wills versus living trusts are quite dissimilar. However, there’s one major similarity between them. Both living wills and living trusts make it so that a person who's no longer sound enough in mind and body to make decisions on their own has already designated someone trustworthy to take over.
Some people decide to get both a living will and a living trust. Because they are so different, having both can make a lot of sense. A living will involves what to do regarding end-of-life medical care, while a living trust involves valuable assets. To cover both bases and make things as seamless as possible upon your passing or incapacitation, it may be best to have both a living will and a living trust. In any case, it’s worth your while to consult an attorney for further advice on these topics as you begin navigating the estate planning process.