Protecting Financial Legacy
Comparing Wills, Living Wills, Powers of Attorney and Trusts
There are a number of different terms thrown around when discussing wills. In fact, the word "will" is often used to describe a number of different things. When you’re considering a document that controls where your possessions go after your death, you’ll want to ensure you understand the ins and outs. For example, do you know the difference between a "will" and a "living will"? Do the terms "power of attorney" or "trust" ring a bell? If not, don't fret. In this article, we'll detail these four key terms and the differences between them.
At the base level, a will simply states what the executor or person in charge of carrying out what the will says, is to do with all of your things. This includes your home, your car, any possessions you own and any insurance policies you have. From a financial perspective, wills are critical because they keep your possessions where you want them. From a personal perspective, it ensures that the people who you designate as beneficiaries receive your possessions and no one else.
What a Will Does:
- Defines an executor for your estate (the person who carries out the will)
- Distributes your assets according to your wishes
- Establishes legal guardianship for your children and care for pets
What a Will Doesn’t Do:
- Change who receives jointly owned property
- Change who receives jointly owned financial accounts
- Change who receives your life insurance or other relevant policies
- Change assets placed in a living trust
Living wills or advance directives are documents that outline how you would like your care and ultimately, your death and burial to proceed. You can outline specifics including whether you would like to be resuscitated, whether you would like machines to be used to keep you alive and if you want to be given experimental drugs in order to save your life.
A power of attorney allows an individual to make decisions on your behalf, including legal and medical decisions. Electing someone to have power of attorney is a serious matter. Generally, their role will only begin if you are incapacitated or unable to make decisions for yourself.
A trust is a separate legal entity one would set up to manage his/her assets. There are two basic types of trusts: revocable and irrevocable. Both are financial tools that you establish while you are still alive, and both are managed by a trustee:
- A revocable trust, often called a living trust, is more flexible. Funds and beneficiaries can be removed from it and changes can be made at any time.
- An irrevocable trust, on the other hand, is inflexible. Once money goes in, it can only come out to the benefit of those named.
For more information on different types of wills, access the full article here.
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