Living Trust vs. Testamentary Trust: Which is Right for You?

Understanding the Differences Between a Living Trust and a Testamentary Trust

When planning your estate, choosing the right trust is crucial. Trusts come in many forms, but two of the most common are a living trust and a testamentary trust. While both serve the purpose of managing and distributing your assets, they have distinct differences, particularly regarding probate.

What is a Living Trust?

A living trust, also known as an inter vivos trust, is created during your lifetime. It allows you to manage your assets and make provisions for how they should be handled upon your death. One of the main advantages of a living trust is that it helps avoid probate. By transferring your assets into the trust, they can be distributed according to your wishes without the need for court involvement. This not only speeds up the process but also keeps your estate details private.

Key Features of a Living Trust

• Avoids Probate: The most significant benefit is avoiding the often lengthy and costly probate process.
• Privacy: Unlike a will, which becomes public record, a living trust remains private.
• Control: You retain control over the assets in the trust and can make changes as long as you are alive and competent.
• Flexibility: You can include specific instructions for how your assets should be managed if you become incapacitated.

What is a Testamentary Trust?

A testamentary trust is established through your will and only comes into effect upon your death. This type of trust is subject to the probate process since it is part of your will. While it doesn’t help avoid probate, a testamentary trust can be beneficial for managing assets for beneficiaries who may not be capable of handling them, such as minor children or individuals with special needs.

Key Features of a Testamentary Trust

• Activated by Probate: A testamentary trust is created as part of your will and therefore must go through probate.
• Control After Death: It allows you to control how your assets are distributed and managed after your death.
• Ideal for Minors: Commonly used to manage assets for minor children until they reach a specified age.
• Flexibility in Distribution: You can set specific conditions for how and when the trust assets are distributed.

Choosing Between a Living Trust and a Testamentary Trust

The choice between a living trust and a testamentary trust depends on your specific needs and goals. If avoiding probate and maintaining privacy are important to you, a living trust might be the better option. On the other hand, if you are primarily concerned with providing for minor children or want your trust to be part of your will, a testamentary trust could be more suitable.

Conclusion

Understanding the differences between living trusts and testamentary trusts is essential for effective estate planning. A living trust offers the benefits of avoiding probate and maintaining privacy, while a testamentary trust provides control over the distribution of assets through the probate process.