While a living trust and a testamentary trust can perform many of the same functions, they do have key differences. A living trust is created during the grantor’s lifetime and can be used immediately to hold and manage assets on behalf of designated beneficiaries. A testamentary trust is created by action of a last will and testament, and only comes into existence after the death of the decedent.
Having the right attorney to prepare your trust can ensure that your individual needs are accounted for, and the proper trust is created for those needs.
How is a living trust created, and what are its advantages?
The grantor of a living trust creates and funds the trust with assets while the grantor is still living. Types of assets that are commonly placed into this kind of trust include real estate, financial accounts, or even personal property. The grantor may still be able to access and manage these assets after transferring them to the living trust if the grantor is also designated as a trustee of the trust.
One of the primary reasons and advantages for choosing a living trust is to avoid probate proceedings. In Utah, probate involves court processes which oversee the disbursement of a deceased person’s assets to that person’s beneficiaries. Probate can be a time-consuming and expensive process, as many people related to the decedent must be contacted and may be required to appear before the court. When the grantor of a living trust dies, however, the appointed trustees simply take over managing the trust and distributing its property to the named beneficiaries. This avoids the need for the court to become involved through probate.
What are the benefits of having a testamentary trust?
A testamentary trust is only created after the death of the grantor of the trust. Instructions for the creation of the trust, what assets it is to include, and who its beneficiaries will be are generally contained within the grantor’s last will and testament.
While testamentary trusts generally must pass through probate court after the grantor’s death, there can be some benefit to having this kind of court oversight. A testamentary trust is often used if certain beneficiaries are children or grandchildren who should not receive a large inheritance while they are still young. A testamentary trust can include provisions such as limiting disbursement to $1,500 per month once the beneficiary turns 18 or 21. This would prevent the entire estate from being inherited all at once before the beneficiary has matured and can manage it. Testamentary trusts can also provide for greater flexibility in how assets are distributed and managed on behalf of beneficiaries with special needs.
The right attorney can help you evaluate what type of trust will best fit your needs and what provisions and conditions should be included in the trust to ensure that your goals and intent are honored – even when you may no longer be capable of making decisions or taking action yourself.