A trust is a document created during your lifetime that can be revocable or irrevocable, but continues upon your death or disability.
Two Basic Categories of Trusts
There are different types of trusts, but all fall into two broad categories, “testamentary trusts” and “living trusts.”
- A testamentary trust transfers property into the trust only after the death of the grantor. Because a trust allows the grantor to specify conditions for receipt of benefits, as well as to spread payment of benefits over a period of time instead of making a single gift, many people prefer to include a trust in their wills to reinforce their preferences and goals after death. The testamentary trust is not automatically created at death but is commonly specified in a will. As a will provision, the trust property must go through probate prior to commencement of the trust.
- A living trust, also sometimes called an “inter vivos” trust, starts during the life of the grantor, but may be designed to continue after his or her death. This type of trust may help avoid probate if all assets subject to probate are transferred into the trust prior to death. A living trust may be “revocable” or “irrevocable.” The grantor of a revocable living trust can change or revoke the terms of the trust any time after the trust commences.
The grantor of an irrevocable trust, on the other hand, permanently relinquishes the right to make changes after the trust is created. A revocable trust typically acts as a supplement to a will, or as a way to name a person to manage the grantor’s affairs should he or she become incapacitated. Even a revocable living trust usually specifies that it is irrevocable at the death of the grantor.
A trust provides for a successor to yourself or your spouse to manage your assets for a specified period or circumstance. It may include provisions for disabled children, spendthrift family members, tax planning, charitable intent, intergenerational distributions, or specific goals. The successor trustee can be an individual or corporate trustee. Much like a corporation, a trust has a life of its own as set forth in the document.