Like all legal specialties there are a number of terms that are specific to estate planning, and if you’re not used to hearing them all the time it can sometimes be confusing. This is often due to the wordiness of the terms and at other times it is simply because of the overlapping terms that are often used in estate planning. With this in mind we would like to take a look at three commonly used estate planning vehicles and explain the differences between them.
A living will is an advance health care directive; it’s purpose has nothing to do with the financial aspects of estate planning. With a living will you state your preferences with regard to the types of medical procedures you would be willing to accept and those that you would prefer to avoid in the event of your incapacitation. The issue of whether or not you want to be kept alive through the use of feeding tubes or other artificial life support systems is usually at the core of a living will.
The last will is the document that is used as a vehicle of asset transfer. Most of us have heard of the “last will and testament,” and when this was commonly used the will was the portion of the document that transferred real property and the testament was used to distribute personal property. At present the vehicle is generally simply referred to as a last will.
People often confuse living trusts with living wills. A living trust is a document that takes effect during your lifetime – helping you manage your assets before you die as well as after you die. They assume that a living will must be just like a last will in that it takes effect while you’re still alive. This is where the confusion lies because in fact the living trust is the commonly utilized vehicle of asset transfer that is executed while the grantor is still alive. It is a “will substitute” that transfers your assets at death. Those assets titled in the living trust avoid probate.