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Testamentary Trust
A trust can be established in a person’s will for different
reasons or purposes. If you have young children and
would want someone to hold and safeguard assets on their behalf
should you die before they reach an age at which you think they could handle assets
themselves, a trust can be set
up for that purpose. If you want one or more persons to receive
income during their lives or for a specified period
of time, but want the fund itself to then go to a charity or another
person, a trust can be set up to accomplish that.
If someone you care about has special needs and you want income,
but not principal, to help that person, a trust can accomplish that
objective. In any of these situations, a trust established in your will becomes
effective only upon your death and should the specified
situation then exist. A testamentary trust does not affect how
you hold assets or handle your affairs today. You would name as a trustee
a person likely to survive you
or an institution you have faith in to oversee assets and follow
your stated wishes.
Living Trust
A “living trust” is set up by a long written agreement,
and usually is intended to become effective at that
time. The person setting up the trust is called the grantor. The
grantor, or someone else, can be named as trustee. A living trust only governs assets
that are actually delivered to the
trustee. A will or established beneficiary designations will govern
all assets not placed into the trust. A living trust
can be either “revocable” or “irrevocable.” A
revocable trust, by far the more common, is one that can be amended or revoked. An irrevocable trust
cannot be. Transfer of assets
to a revocable trust usually does not constitute a sale or exchange
for income tax purposes; transfer of assets to an irrevocable trust usually is treated as a sale
or exchange.
One setting up a living trust can provide that he or she will be
the trustee, with someone else named as successor
trustee should the grantor resign, become incapacitated or die.
This type of trust,
often called a grantor trust, can provide that the person setting
up the trust will control trust assets during his
her life and receive whatever income is earned from trust assets.
This trust will also state how assets of the trust are to be distributed upon the death of
the grantor.
Be Informed
Sometimes, a trust makes sense. Sometimes, there is no need for
a trust. If in consulting with a lawyer, you express
wishes that might best be accomplished through a testamentary
trust, the detail should not discourage you from
doing so. You may assume that a living trust or testamentary trust is needed but find out that neither would make much of
a difference. The important thing is
that you decide what you would like to accomplish and seek help
in figuring out how best to make things work.
If you need an attorney and don't have one, the Lawyer Referral and Information Service can help.
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