Legal Clarity

Legal terms can be confusing.  Often, terms can sound similar to a non-attorney but have very different meanings.  Below are some of the most common legal terms related to Estate Planning that sound similar but have important distinctions.  

Will v. Trust 

Both a Will and a Trust are documents that are used to direct the disposition of your assets upon your death.  

With a Will, you leave your assets titled to your name while you are living.  Your Will nominates an Executor who will have the responsibility for distributing your assets in accordance with the terms of our Will upon your death.  However, once you pass away, your Executor will generally have no power over your assets until your Will is submitted to Probate and the Court formally appoints the person you nominated as Executor of your Will.  Once the Court issues “Letters” to your Executor, your Executor will have the authority to settle and distribute your estate, but always under the supervision of the Court which generally causes delays and expenses that can often be avoided by using a Trust.  Furthermore, your Will only handles death and does not deal with your incapacity.  

With a Trust, you generally re-title your assets to the Trustee of your Trust.  You typically will serve as the initial Trustee, thereby maintaining complete control over your assets.  However, your Trust will also name a Successor Trustee who will have the immediate authority to manage your assets in the event of either your incapacity or your death.  Because your assets are already titled to your Trust, there is no need for any Court involvement in order to give your Successor Trustee authority over your estate in the event of either incapacity or death.  As a result, the administration and settlement of your estate is much faster and much less expensive through a Trust than through a Will.  

In addition to addressing issues of incapacity, there are other functions that a Trust can perform that are not possible with a Will.  A Trust can provide for the management of an inheritance for young or irresponsible beneficiaries, can protect a beneficiary’s eligibility for certain public benefits like SSI or Medi-Cal, can address certain tax planning, and can even provide a degree of divorce protection and asset protection for beneficiaries.  

Codicil v. Amendment 

Estate Planning is rarely set in stone until you die.  A Codicil is a subsequent modification to your Will after it was originally created whereas an Amendment is a subsequent modification to your Trust after it was originally created.  

Testamentary Trust v. Living Trust 

Because a Trust can perform many more functions than a Will, sometimes a Will-based Estate Plan will create a Trust upon the death of the Will-Maker.  A Trust that is created by a Will is known as a Testamentary Trust.  Unfortunately, the Testamentary Trust will not be established until after the Executor goes through the expense and delay of Probate.  

To avoid Probate, Living Trusts became popular.  The basic concept of a Living Trust is to create the Trust now, while you are living, first for your own benefit and then upon your death for the benefit of your chosen beneficiaries.  In this manner, your family is able to avoid the expense and delay of Probate as well as plan for incapacity in an efficient and comprehensive manner.  

Living Trust v. Living Will 

As discussed above, a Living Trust is a Trust that you create while you are living as a better and more efficient alternative to a Will.

A Living Will is an entirely different document.  A Living Will provides instructions on how decisions should be made regarding your care during your incapacity.  With a Living Will, you are able to express your preferences with regard to life support, the treatment and management of pain, certain health care options such as surgeries, medication, and other treatments, and whether and to what extent you prefer to stay in your home rather than be admitted to a care facility. 

A Living Will is often part of your Advance Health Care Directive.  

Health Care Power of Attorney v. General Durable Power of Attorney 

A Health Care Power of Attorney appoints a Health Care Agent who will have the authority to make health care decisions for you in the event of your incapacity.  A Health Care Power of Attorney is often part of an Advance Health Care Directive.  The other part of our Advance Health Care Directive – your Living Will – provides instructions to your Health Care Agent about how to make medical decisions on your behalf.  

A General Durable Power of Attorney is a document that appoints a person who will have the authority to manage your financial decisions in the event of your incapacity.  Financial decisions include the management of assets as well as the ability to sign your personal tax return, get your mail, and deal with agencies such as Medi-Care and Social Security.  

Pour-Over Will

With an Estate Plan based on a Living Trust, your Trust replaces your Will for any assets that are titled to your Trust.  However, if you forget to transfer assets into your Trust while you are living, a Pour-Over Will names your Living Trust as its beneficiary and is designed to capture those assets that you should have titled to your Trust while you were living but for some reason failed to do so. 

Ethical Will 

An Ethical Will attempts to convey your “life story” to the next generation.  Often Estate Planning focuses on material assets.  However, the greatest asset you can leave for your loved ones is your legacy.  An Ethical Will is a document that explains who you are, what your values are, and what you’d like the next generation to learn from you.

KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 and Kyle may be reached at 831-920-0205.

Disclaimer: This article is for general information only.  Reading this article does not establish an attorney-client relationship.  Before acting on any information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.