Establishing an estate plan that works the way you expect it to and accomplishes your goals requires choosing the appropriate estate planning tools. For example, do you know the difference between a testamentary trust and a living trust? These two types of trusts are used for different purposes, and they have different advantages and disadvantages.
A testamentary trust is one that is created using a Last Will and Testament and, therefore, doesn’t take effect until you pass away. A testamentary trust is not funded during your lifetime, meaning that, since the trust does not exist until after your death, you can’t transfer any money or other property into it while you’re still alive. This can make it a cost-effective option if your only goal is to control how property is distributed to your beneficiaries after you death. Because it is part of your Will, a testamentary trust does not avoid probate. Instead, it takes effect and is funded as part of the probate process.
A living trust, on the other hand, is a trust that is established and takes effect during your lifetime. Living trusts can be revocable or irrevocable, with revocable living trusts perhaps being the most popular. In fact, lawyers often use the term “living trust” as shorthand for a revocable living trust. A revocable living takes effect immediately upon being established, allowing you to retain control over your property during your lifetime, and to specify what should happen to trust property in the event o f your death or disability.
Assuming a living trust is properly funded, meaning that all appropriate property has been transferred into the trust during your lifetime, it can help you avoid probate when you pass away, and it can help you avoid the need to have a guardian or conservator appointed in case you become mentally incapacitated during your lifetime.