Testamentary v. Living Trust

Posted by | · · · · · · · · · · | Estate Planning

A trust can be established either during a person’s life (a “Living Trust”) or at his or her death by being included in a person’s Will (a “Testamentary Trust”). Both types of trusts have the benefit of allowing the creator of the Trust (sometimes called the donor, grantor, or settlor) to put in place a system of rules and procedures to properly manage the assets of the Trust while providing benefits to the creator’s intended beneficiaries (generally, his or her children). Being able to name a Trustee that can manage property on behalf of beneficiaries is especially important if the creator has beneficiaries that may not be capable of managing the property due to their age, disability, or poor financial habits. A Trust may also provide asset protection and tax savings if drafted properly.

 

So why would choose one type of trust over the other?

 

Today, the Living Trust appears to be much more popular than the Testamentary Trust for several reasons. First, the Living Trust allows property to avoid probate, which can be a costly and time consuming process, whereas the Testamentary Trust is created through a Will which has to go through probate to be validated. Second, as a consequence of being created by a probated Will, a Testamentary Trust becomes a matter of public record which may raise privacy concerns. Third, the Testamentary Trust requires the Will to be valid in order to be established, which makes the Testamentary Trust more vulnerable to attack since it can fall under a Will contest or fail due to an improperly executed Will. Lastly, having a public Testamentary Trust may create tension among family members who were not included as beneficiaries in the Trust (or who disagree with its provisions for whatever reason). It is also important to note that in the past a Testamentary Trust was subject to the continuous jurisdiction of the court and annual court accountings were required, but that is no longer true under the new MUTC.

 

However, to be fair, there are a few arguments for the Testamentary Trust: (1) if you want the court to supervise the creation of the trust or make it public; (2) if you don’t like the idea of having two separate documents to safeguard (i.e., your Will and Living Trust); (3) you somehow convinced an attorney to draft a Testamentary Trust into your Will without charging you as much as he or she would have for a Living Trust (something that’s likely to cost you more in the end).

 

If you have any questions about Trusts or about estate planning in general, then please feel free to contact Joseph Lento at Perennial Trust by calling (781) 202 – 6368 or emailing jlento@perennialtrust.com. You can also download our Free Estate Planning Guide. Thanks for reading!


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