Many people interchange the terms Living Will and Living Trust, but they are much different from each other.
A Living Will is a used to make your wishes known in case you become incapacitated from an illness or an accident. Typically a Living Will includes directives relating to one’s health care, treatment by a doctor, or perhaps a do-not-resuscitate order.
A Living Will is very helpful to the family since it makes your wishes clear, in a legal document, thus avoiding conflict among family members as to how you should be treated if you are not able to make decisions on your own. Terms, rules and regulations for the Living Will can vary from state to state.
A Living Trust is much different than a Living Will. The Living Trust is a legal tool that holds some or all of your assets and states your wishes as to how those assets are to be divided when you pass away. It can be a very “fluid” document in that it can adapt to many different circumstances and can be customized just about any way you wish.
When you create a Living Trust you can make it either revocable, or irrevocable. The former can be modified by you at any time, so you can change the way you want your assets to be disbursed as life changes occur: marriage of a son or daughter, the birth of grandchildren, perhaps a divorce or a remarriage. An Irrevocable Trust cannot be changed (unless you go to court to try to change it) and it’s often used when a person is intent on leaving some assets to a particular person or cause.
Irrevocable Trusts have one feature that many people like to take advantage of: assets in an irrevocable trust are not considered part of your estate, so they are not subject to estate taxes.
Trusts can, in some cases, be created to help you qualify for Medicaid (but rules are very strict.) You can also create Trusts to leave assets to a person with special needs, or to one who may later want to go to college, to a minor, even to a loved one who may need help in the management of his or her money.
Living Trusts include the naming of a successor trustee – someone who you trust, who fulfills your wishes within the rules of the Trust.
Whether it’s a Living Will or a Living Trust, be sure to consult with an attorney who has been trained in creating these legal documents. If you try to create these yourself or use a “template” you could make a costly mistake.