A will is actually a type of trust that is formed upon the death of the donor. A will allows a person to state in writing how their property should be distributed. It outlines things such as who shall be the executor of the estate and names guardians for children. Having a will does not necessarily cover all of your assets, nor does it keep your estate out of court or protect your heirs from estate taxes.
You should also put in place durable powers of attorney, both financial and medical. This will help those who care about you avoid conservator petitions and medical directive fights. If you have children, you'll need to protect your family by determining guardianship of your children and management of their property.
What is a Trust?
A trust document defines the conditions of property distribution. When one person holds the legal title to property intended for another person, it's called a trust. The holder of the property is the trustee. The trustee's job is to manage the property for the benefit of the other person. The person benefiting from the property is the beneficiary. The person who gave the property's legal title to the trustee is called the donor (or settlor). A will is actually a type of trust that is formed upon the death of the donor.
What is a Living Trust?
A living trust is a trust formed during the lifetime of the donor, rather than after they are deceased. It is possible for the donor to be the trustee of his/her own living trust and control the property until death.
A living trust helps heirs avoid probate (which can be expensive, confusing and time-consuming) and provides orderly distribution of property. A living trust is known as a "flexible document." This means you can include restrictions related to use of the assets you leave behind. (For example, some parents may choose to restrict release of certain assets until a child has successfully completed college or reached a certain age.)
Living trust clients are typically ages 50 to 75 with assets, either liquid or real estate. There are different types of living trusts. Your attorney can advise you based on your needs.
Other Estate Planning Trusts
If you are married with a larger estate (value greater than five million dollars), you should think about taking steps to protect heirs from excessive tax implications upon inheritance. A credit shelter trust (also know as an "A/B Trust" or "Bypass Trust") or an entity such as a Family Limited Trust can be used to eliminate or reduce federal estate taxes.
If you are a single person, you might choose to take advantage of options such as a life insurance trust to protect the proceeds of the policy from estate taxes or create a gifting program.