How Is a Living Trust Different from a Testamentary Trust?
The word “trust” gets thrown around a lot in estate planning. Many Florida residents are not exactly sure what a trust is or how it works. And they almost certainly do not understand all of the different kinds of trusts that may be used as part of a comprehensive estate plan.
This post will not go into every type of trust. Instead, we’ll focus on two broad categories of trusts: Living trusts and testamentary trusts. Each serves a similar function yet involves a different method of execution.
A living trust (sometimes called an “inter vivos trust” by lawyers) is a document you sign while you are still alive that transfers certain specified assets to a trustee. The trust itself may be revocable or irrevocable. With a revocable trust, you retain the freedom to amend or revoke the trust–i.e., transfer the trust assets back to yourself–while you are still alive.
In practice, most revocable living trusts are setup so that the person making the trust–who is known as the grantor–is also the trustee and the primary beneficiary. This allows you to place assets into a trust while still retaining the ability to control and use them without restriction. But when you pass away, a successor trustee assumes control of the trust and distributes its assets as directed by you in the original trust document.
The main reason to go through all this is to keep your assets out of Florida’s probate process. By law, any asset placed in a living trust is not considered part of the grantor’s “estate.” And since trusts are generally not a matter of public record, using a trust can help keep your estate planning a private matter.
A testamentary trust is in some respects much the same as a living trust–assets are transferred to a trustee and distributed in accordance with the grantor’s wishes. The key difference, however, is that a testamentary trust only takes effect upon the grantor’s death. A testamentary trust is therefore irrevocable from the moment it comes into existence. After all, you cannot alter your own estate plan after you die.
As the name suggests, a testamentary trust is often created by the grantor’s last will and testament. For example, your will might contain a clause that leaves your house to your daughter “as trustee,” and that she must hold onto the property until your spouse dies, at which point the property is to be sold and the proceeds divided equally among all of your children. This is basically a testamentary trust, as it does not come into existence until after you die and it leaves binding instructions for your trustee.
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Keep in mind, a testamentary trust does not have to be included in your will. You can create a separate document as you would with an inter vivos trust. Also note that just because you create a living or testamentary trust, that does not make having a will optional. A will is still necessary to deal with any probate assets that may exist at the time of your death–and in fact, many wills expressly transfer such probate assets into a living or testamentary trust, so the two documents work hand-in-hand.
If you need assistance in preparing a will or trust, contact the Fort Myers estate planning attorneys at the Kuhn Law Firm, P.A. today to schedule a free consultation.