When you die with a Will, you are allowing the State to control and supervise the disposition of your estate.
When you die with a properly funded trust, i.e., the trust owns your assets, you appoint someone you trust to control and supervise the disposition of your estate.
To fully understand the difference, please take 27 minutes and watch the video below.
A “Living Will” is a set of instructions that you leave regarding the quality of care you would like to receive if you are alive but unable to communicate your wishes to others. Without a Living Will, you rely on the discretion of your medical providers putting them in charge of your day-to-day care. However, the Living Will is not a legally enforceable document in that there is no statute requiring people to adhere to your wishes. It is a document that you hope will be followed by a moral and compassionate person.
A “Health Care Proxy” on the other hand is a document that is backed by a statute. In essence, the Health Care Proxy allows you to identify the person who will be in charge of your medical decisions. In addition, you may place language into the Health Care Proxy regarding Do Not Resuscitate orders (“DNR”) and “heroic measures” language.
A Revocable Trust is a contract that you create for yourself that creates a legal entity. This “entity” can hold your assets. Because you create this trust while you are alive and mentally competent, it is also known as a “living trust”. The contract will identify who is entitled to the assets and the income from the assets, which you would set as yourself, your spouse and any family members you desire. In other words, you have unlimited access to everything in the revocable trust and make all decisions about what happens to the assets inside the revocable trust. This is different than in Irrevocable Trust created during your life time. (See Irrevocable Trust, below)
Any assets held by the trust pass outside your Probate Estate. Click here to see more about probate.
The primary purposes of a revocable trust are to avoid probate, minimize estate taxes (so long as you are not above the state and/or federal estate tax exclusions) and to create cascading trusts for your family so that whatever comes to them individually in trust is protected from their predators and in some instances, from the family members themselves.
However, a Revocable Living Trust does not protect you and your assets from a Nursing Home’s costs of care should you need one.
For a clearer explanation of the use of trusts, please see the video.Click here to watch the video.
In addition to the benefits provided by a Revocable Trust (see above for more information), the irrevocable trust accomplishes two other goals. The first is to provide protection of your assets during your lifetime from predators, such as the costs of care in a Nursing Home, and the second, is to reduce or eliminate estate taxes upon your death if your estate exceeds your “estate tax exclusion” limits.
“Estate Tax Exclusion” limits are the amounts of money either the State or Federal Government will leave alone on the date of your death. For example, in New York State, if you die with less than $1,000,000 in your estate then there is no estate or death tax. However, if you exceed this amount, then you could be taxed up to 16%. The Federal Government gives you an amount of $5,340,000 before they start taxing your estate at 40%.