Clearing Up The Terminology Confusion: Wills, Living Trust, Guardianship, Probate

by Jackie Bedard on June 14, 2010

in Estate Planning,Guardians,Health Care Directive,Power of Attorney,Probate,Trusts,Wills

This article was originally included in our email newsletter on August 21, 2009. It may have been edited somewhat from the version that was originally emailed, so be sure to sign up in the upper right corner of our website to make sure you are getting our email newsletter hot off the press!

With all of the health care talk–as well as the debacles left behind by recent celebrity deaths–we’re hearing a lot about these:

  • Will
  • Living Trust
  • Guardianship
  • Probate

While this is a great opportunity for the media to educate the public on these important legal issues, the truth is often getting mangled. Furthermore, for most of the public, the information is confusing, stressful and they would just rather not hear about it.

So let me clear up the confusion, as one who deals with this on a *daily* basis…

Let’s start with the basics. Typically, in North Carolina, when a person with assets over $20,000 ($30,000 in certain instances) passes away, their assets will be handled in one of three ways:

(1) If they had no will, their assets will be distributed as mandated by the state statutory law through a court proceeding called probate,

(2) If the person had a valid will, the estate will still have to go through the probate process, but the court will carry out their wishes as stated in their will,

(3) If the person had a valid living trust (and their assets were re-titled in the name of their living trust–this is called “funding”), their wishes would be carried out in private, without the court’s involvement.

So … why does it matter to you?

The answer to this question depends on how much you care about what your loved ones will have to deal with after you are gone and how much control you want to have as to who gets what, and when and how they get it.

If you do nothing, you get no input on any of these questions and the court and one of your eager family members/friend/creditor who petitions the court will make these decisions on your behalf through a process called probate. Why do you care about probate? Often, the probate process can take 9-18 months and can be extremely costly. Your loved ones may have limited control and access to assets, it’s stressful for your family, and the process is completely public. The probate process can often lead to squabbling between family members and airing of the family’s dirty laundry.

If a person leaves a valid will, it will still have to go through the probate process described above and the headaches that go along therewith, but the court will have the benefit of knowing how you want your affairs handled. Instead of relying on the laws of intestate succession (which is the law that distributes your assets to your family members in the order of their relation to you–you can read more here), the court will pass on your assets to the specific people you have identified in your will.

Through a valid will, you can control WHO gets your assets, but you will have no control as to HOW and WHEN they get it.

A living trust (that has been properly funded!), on the other hand, gives you more control and offers significant protection to your family. If you are working with an attorney who has expertise in this field, you can control WHO gets your assets, WHEN and HOW they get it without the court’s involvement. Even better–with a living trust, it is a private administration and can generally be handled in a short period of time. Furthermore, a living trust can incorporate a lot of other great protections including protection from taxes, creditors, predators, medical catastrophe, divorce, remarriage and more.

You may be asking yourself: why would someone ever do a will instead of a living trust? Typically, a person will choose a will over a living trust for one of two reasons:

(1) they don’t know the difference between the two or
(2) the perceived “cost” of doing a living trust.

There are some obvious advantages to doing a living trust over a will, but starting with anything is better than ending up with nothing. If you are not yet ready to make a leap into the world of living trusts, a basic, will-based estate plan is a starting point. In addition to giving the court direction about how you want your assets distributed, every estate plan should also include:

(1) an advance health care directive, which identifies the person(s) that will make health care decisions for you, if you’re incapacitated, and expresses your wishes regarding health care treatments;

(2) a durable power of attorney, which identifies the person(s) that will make financial and legal decisions, when you can’t; and

(3) if you have children, it should also include a Children’s Safeguard Plan, naming both short and long term guardians to care for your children in the event of an emergency, as well as clear and specific directions to those guardians about how you would wish your children to be raised in your absence.

While we all care about what happens to our assets, every person over the age of 18 needs to have an advance health care directive and durable power of attorney (this includes adult children heading off to college!).

I hope this clears up the confusion…

If you’d like to read a little more about these documents, here are some links to past blog articles that go more in depth:

What Is A Trust?

Parents: 13 Reasons Why Trusts Aren’t Just For The Wealthy

What Happens If I Die Without A Will?

Problems With Intestacy

What Is A Will? Introduction to North Carolina Wills

What Is Estate Planning?

Two Legal Documents Every Adult Needs: Part 1

Two Legal Documents Ever Adult Needs: Part 2

We’re here to help!


{ 2 comments… read them below or add one }

John Ladd June 14, 2010 at 6:45 pm

Hi Jackie,
I’ve recently assumed the role of Planned Giving Coordinator at Carolina Friends School in Durham. I find your approach to these issues refreshingly “user friendly” and focused not on impressing readers with legal jargon but on educating and encouraging them to act.
A quick question: does the minimum of $20,000 in assets include real one’s home or other non-liquid assets. If so, that makes this whole issue even more urgent to more of us.
Thank you.
John Ladd

Jackie Bedard June 21, 2010 at 8:26 am

John, I’m glad you find the information helpful. The $20,000 is a rough metric. It really depends on a variety of factors, including the type of property owned and how it is owned. Some assets may not be subject to probate, such as jointly-owned real estate, life insurance, or death benefits of a retirement account paid to an adult. Non-liquid assets such as personal property (jewelry, furniture, automobiles, collections and other possessions) are counted as part of the $20,000. Often jointly-owned bank accounts will still require the appointment of a personal representative. Real estate that is owned individually or as ‘tenants in common’ (as opposed to joint with rights of survivorship or tenants by the entirety) will be included in your estate and require probate. If an estate has less than $20,000 of personal property (or $30,000 if a surviving spouse is the sole heir), less any liens or encumbrances thereon, then the estate can use an abbreviated administration procedure that is available for small estates.

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