Question 1: What is a testamentary trust?
A testamentary trust is a trust that you create as a part of your will and which doesn’t become effective until you die. When you create a will, you get to choose how you want to distribute your property after you die. For many people, creating a trust is often preferable because it allows you greater control over the property than simply transferring it to someone directly as an inheritance.
Question 2: What is the difference between a testamentary trust and a living trust?
While there are several differences between various types of trusts, testamentary trusts only become effective once your will is probated and has been accepted by the court. A living trust, also known as an inter vivos trust, exists before you die. When you create a living trust, you transfer some of your property to that trust to manage while you are still alive. The primary difference between the two is when they are created, though they also have other differences that you’ll need to consider before you choose to create either.
Question 3: How does a testamentary trust work?
When you create a testamentary trust you choose at least two key people. The first is called a trustee. It is up to the trustee to manage all the property the trust owns. The trustee will manage the trust property in the interest of the beneficiary, the second person you select. Testamentary trusts are often created because a parent, for example, wants to establish a trust for the benefit of a minor child. If the parent were to die while the child was not yet an adult, the testamentary trust would take over managing the property until the child was old enough to inherit.
- Estate Planning is Essential Whether You Are Married or Not - April 25, 2018
- Income Tax Basis in Estate Planning – Part 2 - April 23, 2018
- The Downsizing Generation: How to Handle a Surplus of Stuff When a Loved One Ages - April 18, 2018