Understanding the difference between a living trust and a testamentary trust is essential to creating a trust that meets your goals.
A living trust is one that you establish and that takes effect while you’re alive. In order to create a living trust, you’ll sign a trust document that identifies you, as well as the trustee you’ve chosen to manage the trust (usually yourself), and the beneficiaries of the trust. The trust document also spells out the purposes of the trust, and lists the trustee’s powers and duties. Once the trust document is signed by both you and the trustee, you’ll have to fund the trust. This means transferring ownership of the property you want held by the trust into the name of the trustee. Once this is done, everything is business as usual. The beauty of a living trust is that if you become incapacitated, and when you die, there is no need for the legal probate process.
A testamentary trust is created under your will and doesn’t take effect until you die. If you want to establish a testamentary trust, you’ll use your will to identify the trustee, the beneficiaries, and the purposes of the trust. You’ll also identify the property to be held by the trust. Once your will goes through probate, the trustee will take control of the property and manage it on behalf of the beneficiaries you’ve identified.
An estate planning attorney can advise you as to which type of trust best meets your individual goals and needs.