When it comes to estate planning, there are several ways to ensure that your assets are distributed according to your wishes after you pass away. Two of the most common methods are creating a trust under a will (also known as a testamentary trust) and creating a trust under an agreement.
Trust under Will/Testamentary Trust
A trust under a will, or a testamentary trust, is a trust that is created within a will and only becomes effective upon the death of the person creating the trust. The trust is designed to hold and manage assets for the benefit of a named beneficiary or beneficiaries.
One of the primary benefits of a trust under a will is that it allows the creator of the trust to control the distribution of their assets even after they have passed away. The trustee of the testamentary trust is responsible for managing the assets and distributing them according to the terms of the trust. This can be particularly beneficial if the beneficiary is a minor or if the creator of the trust wants to limit how the assets are used.
Another benefit of a trust under a will is that it can help to reduce estate taxes. By placing assets into a trust, they are not considered part of the creator`s estate for tax purposes. This can result in significant tax savings for beneficiaries.
Trust Under Agreement
A trust under an agreement, also known as a living trust or an inter vivos trust, is created during the lifetime of the creator of the trust. The creator of the trust can name themselves as the trustee and manage the assets held in the trust, or they can name someone else to act as the trustee.
One of the primary benefits of a trust under an agreement is that it allows the creator of the trust to avoid the probate process. When assets are held in a trust, they do not need to go through probate, which can be a long and expensive process. This can be particularly beneficial if the creator of the trust wants to ensure that their assets are distributed quickly and efficiently after they pass away.
Another benefit of a trust under an agreement is that it can provide significant flexibility in terms of how assets are distributed. The creator of the trust can specify exactly how they want their assets to be distributed, and they can also place restrictions on how the assets are used.
Ultimately, the decision of whether to create a trust under a will or a trust under an agreement depends on the individual`s circumstances and goals. For those who want to retain control over their assets after they pass away, a trust under a will may be the best option. For those who want to avoid the probate process and provide flexibility in how assets are distributed, a trust under an agreement may be the way to go. It is important to consult with an experienced estate planning attorney to determine the best approach for your individual needs.