If you are considering creating a trust to help manage your assets, you have to decide whether you want the trust to hold your assets while you are alive or if you want the trust to become active upon your death.
The benefits of a living trust are that your heirs can avoid the expense of probate and that you can determine how your assets will be handled if you are incapacitated but not dead. If neither of these are a concern to you, then a testamentary trust that activates upon your death is likely sufficient.
The basics of a trust
A trust simply manages the distribution of your assets to other people. That’s why it’s often used as an estate-planning tool.
To create a trust, the trustor transfers ownership of assets – which can be real estate, cash, stock, investments or anything else owned by the trustor – to a trustee who manages the assets on behalf of one or more beneficiaries. The trustor determines how and when the assets will be distributed to the beneficiaries, and the trustee makes sure that happens.
Testamentary trusts are usually included in a will and activate upon the trustor’s death. Because it is created after death, the assets must go through probate, which can take time as well as an increased tax burden.
Revocable, irrevocable trusts
Living trusts, also called inter vivos trusts, are created during the trustor’s life and allow the estate to avoid probate when the trustor dies. There are two kinds of living trusts:
- A revocable trust allows the trustor to change or revoke the terms of the trust at any time while alive.
- An irrevocable trust cannot be changed after it is created. Revocable trusts usually become irrevocable after the death of the trustor.
A trustor can name themselves the trustee of a living trust, but the will should name a successor trustee to handle the distribution of trust assets after the trustor is dead.
Trusts and wills can be complicated documents with far-reaching consequences. If you have questions about forming a trust or writing a will, get advice from a qualified, experienced attorney.