ESTABLISHING AN ESTATE PLAN: CHOOSING A TESTAMENTARY OR LIVING TRUST
When people think of estate planning, they often think of setting up a Will. However, a Trust is a very useful and flexible tool that is popular with people establishing estate plans. Trusts can replace or supplement your will, as well as help manage property you own during your lifetime. They can also be tailored to fit your needs and the needs of your family.
A trust is a legal document that manages assets for a person (the grantor) for the benefit of someone else (the beneficiary). Trusts are often used to legally avoid the probate process. The most common example would be parents setting up a trust to manage the income or sale of their property on behalf of their children. If their home is owned by their trust, upon the death of both parents, the home goes directly to their children without having to go through the probate process.
Types of Trusts
There are many types of trusts - each with its own requirements, benefits and drawbacks - the terms of which can be quite confusing:
· Revocable and irrevocable trusts
· Special needs and supplemental needs trusts
· Life insurance trust
· Testamentary and living trusts
At a basic level, trusts can be divided into two groups: living trusts and testamentary trusts.
Living trusts - sometimes called "inter vivos" trusts - are created and take effect during the lifetime of the grantor. The grantor may "fund" his or her trust with the intention of having its provisions continue past his or her death. For example, a woman who is the owner of a large apartment complex may put the building into the name of her trust. The provisions of her trust may dictate that, during her lifetime, she may receive the rental payments to use as she wishes and, upon her death, the trust pays the rental income to her favorite niece.
Testamentary trusts are created only upon the grantor's death. It can be created by operation of a person's will or by the provisions of a separate trust. For example, if the parents of young children suddenly die after setting up such a provision in their wills, a testamentary trust would be created after their deaths, managing the financial affairs of the surviving children until they are old enough to handle such matters themselves.
If you are interested in setting up an estate plan and have questions about trusts, consult with an attorney who is knowledgeable with estate planning law. Your lawyer can help you decide which type of trust is best for you and your heirs.