The first is a "living will." Although the name is similar to a living trust, it does something very different.

A living will lets your physician know the kind of life support treatment you want in case of terminal illness or injury. It is very limited -- it only applies to life support in terminal situations -- and in some states, your physician is under no legal obligation to follow it. So, a living will doesn't give you a lot of control.

A "health care power of attorney" is better. It lets you give legal authority to another person (like your spouse or adult child) to make ANY health care decision for you -- including the use of life support -- if you become unable to do so yourself. This document is much broader than a living will, and it can be legally enforced.

If you want an estate plan that will give you all this control -- both financially and medically -- here's what you need to do.

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As you have seen, a living trust gives you far more control than any other estate plan. For example, a living trust:

1. Avoids probate at death;
2. Prevents court control of assets at incapacity;
3. Provides maximum privacy;
4. Allows quick distribution of assets to beneficiaries, or
5. Lets assets stay in the trust until YOU want your beneficiaries to inherit;
6. Prevents unintentional disinheriting; and
7. Reduces or eliminates estate taxes.

Now, as good as a living trust is, remember that it can only control your assets. At the beginning of this presentation, we explained that a good estate plan will let you keep control over your financial AND MEDICAL decisions. Let's look at two documents that pertain to medical decisions, and see how much control they each give you.

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However, as shown here, Sue can receive income from Bob's trust, and she can withdraw principal from it if needed for her health, education, maintenance and support. So, although she cannot have complete control over Bob's trust, the assets can provide for Sue for as long as she lives.

There is another benefit you may be interested in, even if your estate isn't large enough to worry about estate taxes -- and that's control.

As soon as Bob dies, his trust becomes irrevocable. This means his instructions cannot be changed by anyone. So, even though he dies first, he keeps control over who will receive his share of the estate after Sue dies.

This could be important to Bob if he has children from a previous marriage. Or, he may want to make sure that, if Sue later remarries, his part of the estate doesn't end up with Sue's new husband.

By the way, this same tax planning can be done in a will. But you would not avoid probate or enjoy the other benefits of a living trust.

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All they had to do was include a tax-planning provision in their living trust(s).

This splits their $1.35 million estate into two trusts of $675,000 each. When Bob dies, his trust, shown on the right, uses his $675,000 exemption. And when Sue dies, her trust, shown on the left, uses her $675,000 exemption.

The result is that their taxable estates are both reduced to $0, so the full $1.35 million can go to their loved ones.

Now, let me explain a few more things about how this works. Sue has complete control over everything in her trust and she can do anything she wants with its assets -- it's her trust.

But she cannot have complete control over the assets in Bob's trust. If she did, they would have to be included in her taxable estate when she dies.

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Sue's estate of $1.35 million can claim her $675,000 exemption. But the estate tax bill on the remaining $675,000 is a whopping $270,750!

The problem with leaving everything to your spouse is that you waste the estate tax exemption of the spouse who dies first.

You see, under current tax law, everyone is entitled to an estate tax exemption. But when Bob left everything to Sue, he wasted his.

If they had planned ahead, they could have used both their exemptions and, in 2000 or 2001, saved $270,750 in estate taxes.

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