A trust is a private agreement that allows a third party to manage assets for the benefit of the trust’s beneficiaries. But it’s not as simple as it sounds; there are several different types of trusts, and depending on your unique situation, one may be more beneficial than the other. Today, let’s take a look at two basic types of trusts; a living trust versus a testamentary trust.
What Is A Living Trust?
A living trust is a legal document that’s created when you’re still alive. It determines what happens to your assets when you pass. A living trust will ensure your property is distributed according to the trust agreement. This type of trust allows the trustee and beneficiaries to avoid the probate process, thus dividing the assets more quickly.
What Is A Testamentary Trust?
A testamentary trust is created through a will and directs the executor of the estate to create it once you’ve passed. This means that the terms of the trust can be changed at any time. A testamentary trust can be a good estate-planning tool if you’re concerned with providing for beneficiaries for an extended period of time. In the situation of a testamentary trust, your assets go into your probate estate before the executor moves them into the trust.
When Would I Use One Over The Other?
Everyone’s personal and financial situations are different, and that’s the key for determining which type of trust to choose. If you’re looking to avoid probate, and the possibility of potential will contests, a living trust may be your best option.
However, if you’re creating a trust with the intention of avoiding improper inheritances or trust distributions for young children or disabled family members, a testamentary trust may serve you best. A testamentary trust can set parameters on your estate and how it will be managed after you pass on.
Do you have more questions about creating a trust for you or a loved one?
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As the most experienced CPA in the Inland Empire who specializes in working with seniors, Marcia L. Campbell is committed to helping each client thrive by caring for their personal and financial wellbeing with genuine interest, well-established expertise, and a focus on respectful partnerships. Marcia’s team specializes in a number of services including elder & financial care, court & trust accountings as well as private fiduciary and tax services. At Marcia L. Campbell, CPA, we understand the importance of our clients’ individual needs and are committed to helping them make the best personal and financial decisions for their future.