What Is the Difference Between a Living Trust and a Living Will?

What is the difference between a "Living Trust" and a "Living Will?

Because federal law requires a "health directive” be presented as an option before entering a medical facility, “Living Wills” have received a lot of publicity. Living Wills address terminal health care issues and generally direct physicians as to whether life-sustained treatment should be withheld, continued or modified in a variety of life-ending situations. A regular Will addresses disposition of property after death. A Living Will only addresses the medical response to termination life support. They are generally separate documents. Separate from both of these are so-called Living Trusts. They have popularly marketed as probate-avoiding documents. These are nothing more than revocable trusts. A donor puts the property in trust. It is managed under terms of the trust and upon the passing of the maker of the trust; the property is transferred to the designated beneficiary. These have a variety of name but all have the same legal roots.

Can “Probate” be avoided by a Living Trust?

Probate is a very general legal term defining the disposition of assets after death. A Living Trust may not completely eliminate probate, but it has many administrative benefits. A state inheritance tax report must still be filed on property in a Living Trust in states requiring this. Any property not included in the trust at the time of death must still be “probated.” On larger estates, there may be a federal estate tax return to complete. While a Living Trust can streamline estate administration, it is not a cure-all for handling estates or avoiding probate.

What is a “Durable Power of Attorney?”

This is a document wherein you give the power to someone else (such as a spouse of offspring) to make all financial decisions and execute documents for you in the event you are unable to do so, even beyond competency. If health powers are included, the person holding the Durable Power of Attorney can make health decisions along with financial decisions on your behalf.

What happens if I don’t have a Will?

Everyone has a Will. Either you have a written one or you state legislature has written one for you. The law of interstate succession (dying without a Will) for your state spells out in law what happens to your property if you have not written your own Will.

How can high costs of probate be avoided?

A good estate plan is your best defense. Obtaining in writing attorney fees to be charged is a very important step. All other costs can be estimated as a part of an estate plan. Even on small estates, disposition of property can become costly if the heirs fight over ambiguous parts of the estate, or if there are property title problems which could have been avoided by well-drafted estate documents.

How can heirs be kept from fighting over estates?

Usually estate fights develop over a poorly drawn Will where the intentions are not clear or where there is no Will. Most of the time family feuds develop over “Personal effects.” Most Wills will say to divide personal property “equally” amongst the heirs. But “equally” is hard to define between two daughters wanting Mom’s wedding ring. A well-drawn Will specifying a formula for division of personal property and personal effects, which represents the intention of the person making the Will, is important. This is normally unchallenged and can avoid fights.

Can I give my property to the children and get government funds for nursing home care?

Probably not under today’s strict rules and laws. With new government regulations, persons having assets are required to use those assets if they need nursing home care. In 1993 a three- five year “Look back rule was implemented depending on the program and circumstances. This means property transferred within the time of needing government assistance can be voided. The government does not force the sale of propertyor take it for nursing home care. They deny benefits to persons having assets or wrongfully transferring assets. This, in effect, can force the sale of family assets. There are stiff penalties for attempting to defraud the government by asset transfers to children or relatives. However, if one spouse goes into a nursing home, a homestead exemption is part of this formula, so the other spouse can retain adequate property and income. This is a very complicated formula and should be discussed on a case-by-case basis as a part of the pre-estate plan.For persons having some assets, a long-term-care insurance policy may be a better option than some false belief the government will pay nursing home costs.

Can I put my children’s names on certificates of deposit, real property, and other property in order to escape probate?

The use of this type of estate planning with a power of attorney and other patchwork attempts to work through the maze of estate laws is probably the most costly and risky method of estate planning. Since you have worked all your life for what you have, perhaps spending a few hours to properly plan the disposition of your property as you choose is the best investment you can make.

What is the difference between a Will and a Living Trust?

A Will is your final direction for the disposition of your property. It is handled by naming a personal representative or executor to complete all work in finalizing your estate. A Living Trust is a revocable trust in which you have put your assets. Instead of an executor, you have a trustee. This may be a family member, friend, or institutional trust. The trustee distributes your property, pays all expenses and taxes, and handles all final distribution of your estate.

What does it mean if property is held in joint tenancy?

Property held in joint tenancy means the party who lives the longest will get the property. Property listed in joint tenancy supersedes how property is distributed in a Will. So if a home is owned in joint tenancy with a spouse and a wife survives her husband, the house will go to her. This can happen even if the Will says part of the house proceeds should go to the children. Any future distribution of the house sale proceeds will be governed by her Will, and her Will could be changed at any time.

What does probate cost?

Probate costs can vary due to the size and complexity of an estate. Some attorneys charge a percentage of the gross estate and others by an hourly rate. A growing trend is a negotiated “fixed fee” which reduces the cost of probate. The fee is set unless there are extraordinary circumstances that appear during probate such as a court fight over property. Getting the fee in writing from an attorney before hiring counsel for a probate is the best way to eliminate problems over probate costs. In states having the informal probate laws under the Uniform Probate Code, the cost of probate is on average much less because court appearances are rarely needed to complete an estate.

What is a Hamilton trust?

A Hamilton trust is a special trust set up for heirs having special needs. Usually these are set up so a disabled heir can legally continue obtaining government benefits and enjoy his share of an estate for “life enhancement” rather than basic needs. In most of these cases, upon the demise of the special-needs heir, the portion in the Hamilton trust is then given to other surviving heirs of the family.

How much can I give, tax free, to my children, spouse or any other person each year?

Each person can give another up to $10,000 per year without paying federal gift tax under current law. A husband and wife, for example, can each give each child $10,000 per year for a total of $20,000 per child. There are no age limits on this. This has become an important toll to minimize federal estate taxes and to stop the growth of estates that could end up paying substantial federal estate taxes. Spouses can transfer unlimited amounts between each other without federal tax consequences as long as they are both alive.

What is a holographic Will?

This is a Will physically written in one’s own hand with clear intentions, signed and dated. It is legal in some but not all states. Frequently, these Wills are called “homemade Wills.” They can be just as legal as those drawn by an attorney but a higher percentage end up in litigation because of strict legal requirements for having such a Will admitted to probate.

What is a codicil?

This is nothing more than a fancy legal word for an “amendment” or change of an original Will. It is signed and witnessed the same way a Will is signed and witnessed but not necessarily by the same witnesses.

What is the difference between having a Durable Power of Attorney and having someone appointed as guardian?

A guardianship is court supervision over a living person who cannot take care of himself or his affairs. A Durable Power of Attorney gibes similar powers to another person without court supervision. It is a powerful document as the maker is literally allowing another person to stand in his shoes and do everything he would do if he could physically or mentally do so. There are far more safeguards in a guardianship than a Durable Power of Attorney.

What is the difference between a “Durable Power of Attorney” and a general “Power of Attorney?”

A Durable Power of Attorney survives competency of an individual in addition to all other powers that are normally in a general power of attorney. Both terminate upon the death of the maker of the document.

Can I disinherit my spouse or my children?

Disinheriting a spouse is far more difficult than disinheriting a child. Most states have statues providing that spouses get a certain percentages or flat sum of an estate regardless of what is in the Will.This is called the “spouses elective share” among other terms. The spouse has to assert this as a claim on the estate; the laws vary greatly by state. Generally, a prenuptial agreement between the parties will address this issue. In the case of “blended families,” this is becoming a greater issue. If the laws are followed, children can be disinherited, although in most states that cannot be done for a minor or disabled child. Again, these laws vary from state to state and need the guidance of a competent estate planning attorney.

How often should I review my estate plan?

Any time there is a change in family circumstances or law, your estate plan should be reviewed. Just as yu review insurance coverage and other financial matters regularly, your estate plan should be reviewed. Having worked all your life for what you have, spending an hour or so each year reviewing all estate planning documents is good stewardship and good business.

Who should be part of my estate planning “team?”

The most important decision regarding who is on your team is to have people you trust. Many times a CPA or tax preparer is involved. Life insurance agents are major contributors to most estate-planning packages. Stockbrokers and financial planners have become an integral part of many estate planning teams. It is suggested key family members, certainly designated executors, personal representatives or trustees, be involved.An attorney who practices estate planning is worth far more that the legal fees in crafting a plan that truly reflects you “will.”