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Even though legal and financial woes arising from inheritance disputes are all too common, many people hesitate to consider estate planning. Estate planning ensures that any possessions, assets, and money are safely distributed to your loved ones as you wish. Regardless of your estate's size, having a plan in advance will save your family from lots of time, stress, and conflict in the future.
Even though they may sound alike, a will and a living will serve two entirely different purposes. A will is a guideline to the distribution of your assets after death. A living will comes into play when you're alive but incapacitated. The latter mainly deals with medical decisions like treatment plans, pain management, organ donation, and whether or not to preserve your life.
The primary benefit of a living will is to make life easier for your family by eliminating tension and conflicts that may arise from opposing views regarding crucial healthcare decisions, like removing life support and figuring out payment plans.
A living will allows you to develop a medical plan you're comfortable with. Physicians are obligated to comply with your desires mentioned in your living will. This also allows you to choose what treatments to administer or refrain from, avoiding unnecessary or unwanted treatments.
Living wills are also easily modifiable or revocable. If you change your mind, you can revoke a living will by writing a new one or nullifying the original. Some states require notification of the witnesses or physician to validate the change, but modifying living wills is generally an easy process.
One of the biggest concerns regarding a living will is the vague wording making it open to different interpretations. If left unspecified, you may not be able to receive any new treatments discovered after you have become incapacitated.
A living will becomes active only in the event of a terminal illness or when you are incapacitated. This means someone could contest the will's validity by disputing whether or not your condition falls under the valid parameters.
A trust is used to transfer the control of your assets to a trustee on behalf of your beneficiaries. It provides you with a safe way to manage and protect your assets so they can be safely passed on to a family member or someone else of your choosing at the appropriate time.
The most significant advantage of a trust is that it allows you to protect those who would have difficulty managing their affairs, like children, the elderly, or disabled family members. Even after you're gone, you can continue protecting and caring for your family through a trust.
A trust is an efficient method to protect your estate from falling into the wrong hands. You can also use them to ensure your business remains protected from family members with little business experience.
Trusts are also an excellent way to avoid probate court. Probate is an expensive, lengthy, public process and costs between 5% to 7% of your estate. Trusts can also help reduce estate and inheritance taxes as the beneficiaries are taxed only for their distributions from the trust's income.
Identifying a trustee to manage your assets is a difficult phase in establishing a trust. Third-party professional trust companies and financial institutions are expensive and may not offer you the degree of flexibility you require.
Trusts have a complex structure and require a lot of additional paperwork. You will need to compile all the documents associated with the assets you want to assign to the trust. Tasks like reissuing the deeds to real estate, titles to vehicles and other assets in the trust's name, and changing the names on financial accounts, are all time-consuming but must be completed for the proper functioning of a trust.
Wills and trusts are tools that can co-exist in an estate plan. Depending on your preferences, either could provide a solid foundation for your plan.
A will is used to give directions on how your assets are distributed and who receives them after you've passed away. Therefore, unlike a will, a trust becomes active as soon as it's signed. This means that it only comes into effect after death. In contrast, a living trust allows a trustee to manage beneficiary assets even while you are alive.
All wills must go through the lengthy and tedious probate court process, which means that a court verifies its validity and oversees a will's execution. In comparison, a trust passes outside of probate and is more straightforward in execution.
Since a court is involved in the execution of a will, the details are mostly public. This makes the will more susceptible to challenges. Trusts are free from public records and less likely to be challenged.
Wills allow you to name the guardianship of minors. Trusts only deal with your assets, and there is no provision to designate guardianship of children.
Significant factors when deciding between wills and living trusts are:
In the absence of an estate transfer plan, the state will distribute your property depending on its laws. If not done right, estate planning can be a harrowing and costly experience for your family later on. For this reason, whether it is a will, a living will, or a trust, it is always safe to consult a professional advisor.
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