If you’re preparing for retirement, you’ve likely started thinking about your financial future and the plans you’ll put in place for your family.
This is often when estate planning starts to come more into focus. As you begin reviewing your options, you’ll likely hear documents like a living will, a last will and testament, and a living trust come up. Because their names sound similar, it’s easy to assume they serve the same purpose or that choosing one means you don’t need the others.
In reality, each document is designed to address a different aspect of your financial, legal, or healthcare planning. Understanding those differences can help you make more informed decisions and provide clearer direction for your loved ones.
Before deciding which documents may be appropriate for your situation, it helps to understand what each one is designed to do.
What Is a Living Will?
A living will is a legal document that establishes your preferences for medical treatment if you’re unable to make or communicate healthcare decisions for yourself.
It may include directions related to life-sustaining treatment, resuscitation, artificial nutrition and hydration, or other end-of-life care decisions. While the specific provisions will vary, the purpose is to provide guidance to your healthcare providers and loved ones during situations where you cannot express your wishes.
Unlike a will or trust, a living will does not determine who inherits your assets or how your estate will be managed. Instead, it focuses entirely on healthcare decisions and the medical care you would or would not want to receive under certain circumstances.
Having those wishes documented in advance can help reduce uncertainty for family members and provide healthcare professionals with clearer direction during already difficult situations.
What Is a Living Trust?
A living trust is a legal arrangement that allows you to transfer ownership of certain assets into a trust during your lifetime. While you’re living, you can typically continue managing those assets as the trustee. If you become unable to manage your financial affairs, a successor trustee that you’ve chosen can step in and continue managing the trust according to your instructions.
After your death, the successor trustee is responsible for distributing the trust’s assets to your beneficiaries based on the terms you’ve established.
Unlike a living will, which focuses on healthcare decisions, a living trust is designed to help manage and transfer assets. Depending on your circumstances, it may also help your estate avoid probate for assets held in the trust, allowing those assets to be distributed more efficiently and privately.
Whether a living trust makes sense in your situation depends on factors like your financial situation, estate planning goals, and the types of assets you own. An estate planning attorney can help decide whether a trust is appropriate for your circumstances.
Want a better understanding of estate planning? Download our guide, The 411 on Estate Planning, for an overview of the documents and planning considerations that can help protect your wishes and the people you care about.
What Is a Last Will and Testament?
A last will and testament is a legal document that outlines how your assets should be distributed after your death. It also allows you to name an executor to carry out your wishes and, if applicable, designate guardians for your minor children.
Unlike a living trust, a will generally goes through the probate process before assets are distributed. It also only becomes effective after your death, whereas a living trust can help manage certain assets during your lifetime if you become incapacitated.
Even if you have a living trust, a will may still be an important part of your estate plan. Assets that were never transferred into the trust, as well as other matters not addressed by the trust, may still be handled through your will.
Like a living trust, a last will and testament focuses on your assets, not your healthcare decisions, which are typically addressed through your living will and other healthcare planning documents.
How These Documents Work Together
Although a living will, a living trust, and a last will and testament all play a role in estate planning, they’re each designed to accomplish different goals.
- A living will helps you communicate your medical treatment preferences if you’re unable to make healthcare decisions for yourself.
- A living trust helps manage certain assets during your lifetime and provides instructions for how those assets should be managed and distributed according to the terms of the trust.
- A last will and testament provides instructions for assets outside of a trust, names an executor to administer your estate, and may address other important matters, such as naming guardians for minor children.
Rather than replacing one another, these documents often work together as part of an estate plan. Depending on your circumstances, an estate planning attorney may recommend having more than one of these documents in place to help ensure your healthcare wishes, financial assets, and other important decisions are properly documented.
Together, these documents help address different aspects of your healthcare, financial, and estate planning, creating a more coordinated plan for both you and your family.
Other Documents That May Be Part of Your Estate Plan
A living will, living trust, and last will and testament are often considered foundational estate planning documents, but they may not be the only ones included in a comprehensive estate plan.
Depending on your circumstances, your estate planning attorney may also recommend documents such as:
- A durable financial power of attorney, which allows someone you trust to make certain financial decisions on your behalf if you’re unable to do so.
- A healthcare power of attorney, which designates someone to make medical decisions if you’re unable to communicate your wishes.
- HIPAA authorization forms, which allow designated individuals to access your medical information when needed.
- Beneficiary designations for retirement accounts, life insurance policies, and certain other assets, which should be reviewed periodically so you can be sure they continue reflecting your wishes.
When Should You Review or Create Your Estate Plan?
Estate planning isn’t something that only happens after you retire. For many families, the years leading up to retirement are a great time to review existing documents or create an estate plan if you haven’t already.
Major life events and financial changes often create a need to revisit your plan, including:
- Approaching retirement
- Marriage or divorce
- The birth of a child or grandchild
- Purchasing or selling a home
- Starting or selling a business
- Receiving an inheritance
- A significant increase in wealth
- Changes to your health or family circumstances
- Moving to a different state
Even if you already have estate planning documents in place, they should be reviewed periodically to ensure they continue reflecting your wishes and your current financial situation.
An estate plan created years ago may no longer account for changes in your family, your assets, tax law changes, or your longer-term goals.
Already have an estate plan? It may be worth taking the time to confirm that every piece still works together. Our article, Estate Planning Checklist: 10 Steps to Avoid Common Estate Planning Pitfalls, walks through some common oversights and steps you can take to help keep your estate plan up to date.
Estate Planning as Part of Your Financial Plan
As retirement gets closer, estate planning tends to become much more connected to the rest of your financial plan.
The decisions you make around your estate can dictate how assets are ultimately distributed, but they can also affect your retirement strategy, tax planning, and the guidance your family receives in the future.
As your financial life evolves, it’s common to revisit planning areas such as:
- Retirement income strategies
- Tax planning opportunities
- Beneficiary designations
- Legacy and charitable giving goals
- Healthcare planning
- Family communication around financial decisions
Rather than looking at these planning areas independently, it can be helpful to think about these decisions in the context of your broader financial plan. At Towerpoint Wealth, we help clients understand how estate planning fits into that larger picture.
While we don’t draft legal documents, we regularly work with clients to:
- Collaborate with estate planning attorneys
- Review beneficiary designations
- Consider the tax implications of estate planning decisions
- Coordinate estate planning strategies with retirement and investment goals
- Revisit estate planning as financial circumstances and family needs evolve
We caution you to remember that estate planning isn’t a one-time event. Like the rest of your financial plan, it can benefit from periodic review to help it continue to reflect your goals, your wishes, and the needs of the people who matter most to you.
Final Thoughts
Estate planning is about so much more than deciding who receives your assets. It’s also about documenting your healthcare wishes, helping your loved ones navigate important decisions, and ensuring your financial affairs are handled according to your intentions.
A living will, a living trust, and a last will and testament each serve a different purpose to help you do so. Depending on your circumstances, having more than one of these documents in place can help create a more complete estate plan and provide greater clarity for the people you care about.
If you’re preparing for retirement or wondering how estate planning fits into your broader financial plan, we’re here to help. Schedule a complimentary 20-minute Ask Anything conversation with the Towerpoint Wealth team and bring your questions to discuss how estate planning may fit into your longer-term financial goals.
Frequently Asked Questions
Is a living will the same as a last will and testament?
No. Despite their similar names, they serve very different purposes. A living will communicates your wishes for medical treatment if you’re unable to make healthcare decisions; a last will and testament outlines how your assets should generally be distributed after your death and may also name guardians for minor children.
Do I need both a living will and a living trust?
Many people benefit from having both because they address different aspects of an estate plan. A living will focuses on healthcare decisions, while a living trust helps manage and distribute assets. The documents that make sense for you will depend on your personal circumstances, financial goals, and estate planning needs.
Does a living trust avoid probate?
Assets that have been properly transferred into a living trust may be able to avoid probate, which can simplify the distribution process for those assets. However, probate laws vary by state, and not every asset is automatically covered by a trust. An estate planning attorney can explain how probate applies to your specific circumstances.
How often should estate planning documents be reviewed?
Estate planning documents should be reviewed periodically and whenever significant life changes occur, such as marriage, divorce, the birth of a child or grandchild, retirement, the purchase or sale of a business, receiving an inheritance, or moving to a new state. Regular reviews can help keep your estate plan reflecting your wishes and your current financial situation.
