Estate planning attorneys typically utilize multiple variations of the same types of legal instruments. This can sometimes lead to confusion among people who are trying to understand what estate planning is all about. Some of these terms are rather wordy and complex, but even some of the simpler ones can be a bit misleading because of the way that they overlap. With this in mind we would like to clear up some popular misconceptions about three very commonly used estate planning vehicles.
Everyone knows what a last will is in a general sense. It is the most commonly used vehicle of asset transfer for people who are engaged in the process of estate planning. When you use a last will as your primary vehicle of asset transfer, your estate must pass through the process of probate before your heirs will receive their inheritances. Probate can be costly and time-consuming, so people sometimes implement strategies to avoid it.
Living trusts are estate planning vehicles that take effect while the grantor is still alive. Living trusts offer a number of advantages over last wills, not the least of which is the fact that they facilitate the transfer of assets outside of the probate process. Because of this many people choose to use living trusts as their primary vehicle of asset transfer instead of last wills.
A living will is an advance health care directive, and as such it does not serve any financial purpose. With a living will you make your preferences known with regard to the types of medical procedures you would accept and those that you would deny should you become incapacitated at some point in time. Because most individuals recognize the term “will” as a vehicle of asset transfer, sometimes people will assume that a living will serves the purpose that is actually served by a living trust.
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