A trust is a legal document that allows a grantor to distribute assets to a trustee for the benefit of another. Generally, trusts come into effect immediately upon creation. They create a fiduciary relationship between you and a trustee whom you choose to carry out your post-death wishes. This relationship structure and what the trustee is to do is created in an independent and private trust document. The trustee is bound by his or her acceptance of the trustee position to enforce your wishes through a private process managed by him or her without court interference. There are several types of trusts that can be created, however two of the most common trust that we encounter are testamentary trusts and revocable living trusts. An understanding of the similarities and differences between testamentary trusts and revocable living trusts can be essential to your estate plan.
A testamentary trust, is found within one’s will. Unlike living trusts which take effect immediately upon signing of the documents, testamentary trusts come into effect only upon your death, as the rest of your will does. Testamentary trusts can be created for the purpose of leaving assets behind to loved ones with disabilities or minor children since the management process of such distributions often requires more hands-on involvement. An example of a testamentary trust is a “children’s trust” for your minor children. Since a testamentary trust is set to take effect upon your death, you cannot change or “revoke” it once it is established and signed by you. They are officially created when your will goes through the probate court process. This often delays a decedent’s asset distribution and personal affairs management after death.
Revocable Living Trusts
On the other hand, a revocable living trust is not part of the probate process, and it comes into effect immediately upon your creation of the instrument and once you fund it, meaning once you put assets such as bank accounts and real estate into the trust. With these living trusts, you can change or “revoke” it during your lifetime. While avoiding the probate process, revocable living trusts also allow you to change beneficiaries, the distribution of your assets, and any other specific changes appropriate for your family. Your chosen trustee will manage your wishes pursuant to the governing trust document. A “pour-over” will is used in conjunction with revocable living trusts. A pour-over will directs the distribution of assets that are not in the revocable living trust. These are often assets that you have not named or provided for in the revocable living trust and the “pour-over” will ensures all assets are accounted for at your death and placed into your revocable trust.
Whether a testamentary trust or a revocable living trust is best for your situation depends on the needs of your family, your children, and your wishes in taking care of them upon your passing. It is best to consult an experienced attorney during this process to ensure your end-of-life wishes. The Hill Law Group is here to help.