We often face important choices that can result in life-changing results. In estate planning, which is already heavily vested in life and death, you may find yourself comparing estate planning tools. Take trusts, for example. There are many different specific trusts from which to choose. However, when and how the trusts are formed is important. When looking for reasons to choose a testamentary trust over a living trust, consider the following:
Forming the Trust
A testamentary trust typically is formed through the grantor’s Last Will and Testament or Revocable Living Trust. Of course, this means the trust is created and funded after the grantor has passed away.
A revocable living trust, also called an inter vivos trust, is formed by the grantor. This type of trust can be changed whenever the grantor wants before his or her death.
Funding the Trust
Property must be transferred to a trust. Otherwise, the trust is an empty vessel.
Testamentary trusts are funded from the grantor’s estate as part of the probate process. It’s very possible that the grantor’s estate may have changed between the time the Will was written and the grantor’s death. It’s possible that the trust may be much larger or smaller than anticipated. Still, creating a testamentary trust takes some of the work off the grantor as he or she will not be involved in transferring property to the trust.
A revocable living trust is funded by the grantor at or near the time of forming the trust. In addition, a grantor may execute a pour-over Will. This type of Will includes language that transfers assets to the trust after the grantor has passed away. However, property will be moved to the trust as part of the probate process, so delays may occur.
Altering the Trust
A testamentary trust is irrevocable because it is formed when the grantor dies. Irrevocable trusts offer asset protection, while living trusts do not.
However, the grantor is free to make changes to the testamentary trust by changing his or her Will. The person who forms a living trust generally can alter the terms of the trust at any time.
Specific Reasons to Use a Testamentary Trust
A grantor may choose a testamentary trust over a living trust to achieve his or her estate planning goals like:
- Creating a trust to support the surviving spouse;
- Passing assets to someone other than the surviving spouse,
- Providing for someone with special needs;
- Staging withdrawals for young heirs;
- Passing assets to children from a previous relationship;
- Donating to a favorite charity;
- Taking advantage of estate tax benefits.
Learn More About Testamentary and Living Trusts
At Virtus Law, we assist clients in making thoughtful decisions about their estate plans, including whether to choose a testamentary trust over a living trust. To schedule an appointment with one of our estate planning attorneys, contact us at 612.888.1000 or send an email to firstname.lastname@example.org. Our main office is in Minneapolis, with other offices located in Maplewood, Cambridge, Edina, Mendota Heights, and Red Wing.