Trusts can be an effective estate planning tool that allows the person for whom the trust was created (Grantor/Settlor/Testator/Trustor) to maintain effective control over assets during and after their lifetime. Wills and other estate planning documents such as life insurance policies and beneficiary designations are effective but have their limits. Trust documents, when effectively drafted, can enhance the estate planning process and provide effective transfer of assets to others.

A trust may be created in one of two ways: inter vivos (living) or testamentary. An inter vivos or living trust is a trust that is formed during the life of the person who formed the trust. A testamentary trust, on the other hand, is a trust that is formed at the death of the person who formed the trust.

Inter Vivos (Living) Trusts

An inter vivos trust is created for the purpose of estate planning while an individual is still living. The terms of the trust take effect while the individual forming the trust is still alive and it allows the individual for whom the document was established to access assets such as cash, investments and real estate property named in the title of the trust during their lifetime. For example, Anthony is married to Brenda and together they have two teenagers, Cathy and David. Anthony and Brenda have combined estate of $500,000. They decide to gift Cathy and David $100,000 each by placing it into a trust fund, where the cash will be invested in blue chip stocks. Anthony and Brenda name themselves as trustees, and the trust document directs that Cathy and David begin receiving distributions from the trust when they turn 25.

An inter vivos trust may be either revocable or irrevocable. Inter-vivos trusts that are revocable offer more flexibility to the grantor, while irrevocable trusts offer certain tax advantages and creditor protection. However, both are effective, as the assets that are in the trust bypass the probate process at the grantor’s death.

Testamentary Trusts

A testamentary trust fund is formed at the death of the grantor by his or her will. For example, instead of creating a trust while alive, Anthony may write a will that directs that the assets in his estate be placed into a trust to be distributed to Brenda, Cathy and David at his death. The downside of this testamentary trust is that the assets used to fund the trust are almost certainly going to go through the probate process, because it is created in a will, and a will must be probated at the death of the testator (person who wrote the will).


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