Estate planning is the process of making arrangements for the management and distribution of a person's assets after they pass away. There are various estate planning tools that individuals can use to ensure their wishes are carried out, including wills and trusts. However, two specific estate planning documents that are often confused are living wills and trusts. Although they share some similarities, there are distinct differences between the two. In this blog post, we will explore the differences between living wills and trusts when it comes to estate planning.

What is a living will?

A living will, also known as an advance directive, is a legal document that outlines an individual's medical wishes in the event they become incapacitated and are no longer able to make decisions for themselves. A living will typically includes instructions on the types of medical treatments or procedures the individual wishes to receive or avoid, such as life support, artificial hydration or nutrition, and pain management. It is important to note that a living will only goes into effect when the individual is unable to make decisions for themselves, and the document can be revoked or modified at any time while the individual is still capable of making their own decisions.

What is a trust?

A trust is a legal arrangement in which a person (the grantor) transfers assets to a trustee to manage for the benefit of one or more beneficiaries. The trustee is responsible for administering the trust and distributing its assets to the beneficiaries according to the grantor's instructions. There are two main types of trusts: revocable and irrevocable. A revocable trust allows the grantor to modify or terminate the trust at any time while they are still alive, while an irrevocable trust cannot be modified or terminated once it is established.

What are the differences between living wills and trusts?

One of the main differences between living wills and trusts is their purpose. A living will is designed to address healthcare decisions, while a trust is primarily used for the management and distribution of assets. A living will ensures that an individual's medical wishes are respected and carried out in the event they are unable to communicate them, while a trust ensures that assets are managed and distributed according to the grantor's wishes.

Another difference is in their timing. A living will goes into effect only when the individual becomes incapacitated, while a trust can be established and take effect immediately or after the grantor's death. Additionally, a living will only deals with medical decisions, while a trust can cover a wide range of assets and instructions, such as real estate, investments, and even instructions for the care of a pet.

Finally, living wills and trusts have different legal requirements. A living will typically requires witnesses or notarization to be legally binding, while a trust must be properly executed and funded to be effective. A properly executed and funded trust can help to avoid probate, reduce estate taxes, and ensure that assets are distributed according to the grantor's wishes.

In conclusion, while living wills and trusts share some similarities, they serve different purposes in the estate planning process. A living will addresses healthcare decisions, while a trust manages and distributes assets. Understanding the differences between these two important estate planning tools can help individuals create a comprehensive plan that reflects their wishes and ensures their loved ones are taken care of after they pass away.