Trusts are legal tools within an estate plan that can help you to manage and distribute your assets according to your wishes. There are many different options, and each can help to achieve different goals. Two of the more common are testamentary trusts and living trusts.
What are the key characteristics of testamentary trusts?
A testamentary trust, or a trust included in a will, stipulates how a trustee will manage and distribute assets left to benefit certain heirs.
Testamentary trusts are generally:
- Created by a will: They do not come into effect until after the testator’s death near the end of the estate administration process.
- Flexible in design: The testator can customize the trust to distribute assets over time to beneficiaries, such as minors or for those who might not manage a lump sum wisely or for those who have special needs or even for taking care of pets.
These characteristics highlight the structured control testamentary trusts offer in managing and distributing assets posthumously.
How do testamentary trusts differ from living trusts?
While both types of trusts aim to manage assets, they differ significantly in terms of formation, activation, and handling. Differences between testamentary and living trusts often include:
- Activation: A living trust is active upon creation and funding, whereas a testamentary trust activates only after the testator’s death.
- Probate: Living trusts may bypass certain aspects of the probate process and allow for a quicker, private transfer of assets. Testamentary trusts are only set up after an estate has gone through probate.
- Control during lifetime: With a living trust, the grantor, if serving as the trustee, can continue to manage the assets during their lifetime,
It is important to understand these differences so you can choose the tool that best helps you meet your estate planning needs because the choice between a testamentary trust and a living trust can have significant legal implications regarding your assets, privacy concerns, and accessibility to funds. Choosing the right type of trust for estate planning is a decision that should be made with a clear understanding of the legal implications and personal goals.