It can be difficult to discern between variious estate planning tools. They can almost sound the same, but they each provide a unique function, so it is important to differentiate betweenthem.
The difference between a Last Will and a Living Will
"Living Will" and "Last Will and Testament" sound similar, but are very different. The Living Will specifies what you wish dont at the end of your life, while the Last Will and Testament specifies what shoudl happen after you die.
A Last Will is used to distributed property to beneficiaries, specify last wishes, and name guardians for minor children. It is an important part of any estate plan. Without one, the courts will make these critical decisions for you. A Last Will can allow you to designate exactly how you want your assets and other personal property to be distributed to your friends, family and other loved ones after you die. A Will is probated through the probate court after you die. The directions of the Will are carried out by your personal representative, which is the person you designate before you die to carry out the instructions of your Will. A Last Will only goes into effect after you die.
A Living Will has nothing to do with property. A Living Will allows you a way to dictate what life support you want in case you ever become incapacitated with no reasonable expectations of a recovery. In a Living Will a person can often name who they want to be able to visit them, and often names a person to enforce the your Living Will. A LIving Will may also include whether you want to donate your organs, or whether you want to be cremated. Living Wills are often called "Advanced Health Care Directives" or "Representation Agreement." It does not go into effect until your doctor believes you have no chance of recovery and certifies that you have a terminal illness or are permanently unconscious.
The difference between a Testamentary Trust and a Living Trust
There are two basic types of trusts: Living Trusts and Testamentary Trusts. A Testamentary Trust is set up in a will and established only after the person's death when the will goes into effect. A Living Trust or an "inter-vivos" trust is set up during the person's lifetime.
A Living Trust is used to transfer property to beneficiaries. But unlike a last will, a livign trust is not usually subject to probate court, which can take years to settle and cost thousands in court fees. A Trust is administered outside of the probate court after you die. A Trust is generally used to reduce or avoid taxes that woudl normally be paid to the probate court after you die.
Living trusts can be either "revocable" or "irrevocable." Revocable trusts allow you to retain control of all the assets in the trust, and you are free to revoke or change the terms of the trust at any time.
For example, if you have second thoughts about a provision in the trust or change your mind about a trust beneficiary or fiduciary, then you can modify the terms of the trust through what's called a trust amendment. You can also revoke the entire agreement or change its entire contents.
At the time of death, assets held in the name of a revocable living trust pass directly to the beneficiaries named in the trust agreement and stay outside the probate process. This allows beneficiaries almost immediate access to the assets instead of waiting until the will is settled through probate.
With irrevocable trusts, the assets in it are no longer yours, and typically you can't make changes without the beneficiary's consent. But the appreciated assests in the trust aren't sugject to estate taxes. Irrevocable trusts can take on many forms and be used to accomplish a variety of estate planning goals including estate tax reduction. The person who transfers assets into an irrevocable trust is giving over those assets to the trustee and beneficiaries of the trust so that the person no longer owns the assets - thus, they cannot be taxed as part of the estate when the person later dies. Consult your lawyer for other reasons why an irrevocable trust might serve your purpose.
To know which estate planning tools best suit your situation and to ensure you are within the laws of the province in which you live, please consult your lawyer.
The information contained in this article is not intended as legal advice. Consult your lawyer or estate planning professional on any matters concerning estate planning to obtain the most accurate and up-to-date information.
MAY 2011 SENIOR LIVING MAGAZINE VANCOUVER ISLAND
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