What Is The Difference Between Testamentary Trusts And Living Trusts?

One tool that individuals sometimes find to be a helpful addition to their estate plan are trusts. There are many different terms people may hear thrown around regarding trusts. Two such terms are "testamentary trust" and "living trust." Some may not be entirely clear on what these two terms mean. Today we will go over what these terms refer to.

Testamentary trusts and living trusts are the two main broad categories for trusts. The main thing that makes these two classes of trusts different from each other is when they initially take effect.

In living trusts, property is put into the trustee's control, and thus the trust becomes effective, while the person forming the trust is still alive. Thus, a living trust is a trust that starts being active during the trust-former's life.

In testamentary trusts, property isn't put into the trustee's control until after the person forming the trust has passed away. Thus, a testamentary trust is a trust that starts being active after the trust-former's death. Typically, testamentary trusts come about as a result of the terms of a person's will.

When a person is thinking of having a trust included in their estate plan, one thing they may wonder is: should the trust be a living trust or a testamentary trust? The answer to this question is dependent on many things, as there are a variety of different things it can be important to consider when making this particular decision. One is what sort of timing for the trust becoming active would best serve the person's goals. Another is how other differences regarding these two classes of trusts would impact a trust's ability to achieve a person's estate planning goals. Attorneys can provide individuals who are planning on forming a trust with helpful information regarding trust type decisions and the potential impacts of such decisions.

Source: FindLaw, "Trusts: An Overview," Accessed Jan. 14, 2015

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