pair of glasses and a pen sitting on top of estate planning documents

In the realm of estate planning, there can be a lot of confusion around terminology. Often people come into our offices asking for or about one type of legal document or another, and either they do not understand what they are asking for, or they don’t understand the interplay among various legal documents. In this article, we will address two terms which some people use interchangeably, but which are very different things: living trusts and estate plans.

What is a Living Trust?

Living trusts, which are also sometimes called “revocable living trusts” or “inter-vivos trusts,” are estate planning documents prepared and implemented during a person’s lifetime and which also include a disposition plan for those assets owned in the trust. This is in contrast to a Will, which only has effect after a person has passed away. Typically, the “grantor” (the person who creates the trust) is also the “beneficiary” (the person who benefits from the trust) and the initial “trustee” (the person running the trust and managing trust assets). Because a living trust has provisions for the management of assets by successor trustees, it is a good tool to plan for possible incapacity (for example, dementia, Alzheimer’s or injury) of the grantor/beneficiary, and a good way to avoid any guardianship proceeding if the beneficiary becomes wasteful with his or her assets. It’s also helpful if the beneficiary has no other family members to care for him in his older age, as a bank trust department can serve as trustee and manage all assets and distributions.

There are other reasons people may prefer living trusts to wills. Living trusts are generally preferred to include complicated plans for disposition of assets, such as continued trusts for family members, especially in blended family situations. They are also harder to contest than a will, if there is a threat of the disposition being challenged. Living trusts provide more privacy than wills, as wills become public record as part of the probate process and living trusts do not.  Finally, living trusts can help avoid probate all together, which is especially helpful if someone owns property in a state outside of Texas.

What is an Estate Plan?

An estate plan, however, is bigger than a living trust. Estate planning encompasses an analysis of your assets and how each one will pass, whether by living trust, will, or beneficiary designation. Estate planning can address estate tax issues, and the proper documentation of small business interests. It generally includes incapacity planning during a person’s lifetime by the preparation of financial and medical powers of attorney, HIPAA releases, choices of possible guardians (for minor children or for incapacitated adults), and living wills which set forth a person’s wishes regarding the use of life support. In other words, estate planning is a process which ends in an intended course of action for the passage of assets and the preparation of documents that will facilitate that plan. A living trust can be a part of the estate plan, but living trusts are not a part of every plan, and they certainly are not the only part of the estate plan.

As a final point of clarity, use of the term “estate” is also often confused. Your “estate” is what you own at your death. It consists of all assets that need to be passed on to a beneficiary.  Those assets that are owned in a revocable living trust make up the “trust estate,” for which the trustee has the responsibility of distributing. Assets owned outside of a revocable living trust are further divided into your “non-probate estate” and “probate estate.” Your “non-probate estate” consists of assets which have payable-on-death designations or beneficiary designations, and through which, pass to beneficiaries according to their contractual terms and not according to the terms of your Will.  (As a technicality, any trust estate is also considered part of the non-probate estate.) Your “probate estate” consists of assets for which the executor under your Will has the responsibility to distribute, or if you die without a Will, an administrator appointed by the court has the responsibility to distribute. Determining each part of your estate is another facet of estate planning.

Hammerle Finley Can Help with All of Your Estate Planning Needs

Like numerous things in life, your estate “is a many and varied thing.” Planning it takes deliberation and aforethought. Lack of planning simply kicks the can down the road to family and friends to figure out after a loved one’s death, and generally causes additional expenses and delay. It can also leave you without valuable protection during your lifetime, if something happens leaving you incapacitated. If you haven’t considered it, do so today.  Attorneys Virginia HammerleKendra Rey and Robert Morris at Hammerle Finley Law Firm would love to speak with you and help you put your plan in motion. Schedule a consultation today.