What is the Difference Between an Inter Vivos Trust and a Testamentary Trust?
A TESTAMENTARY TRUST IS CREATED IN A WILL AND FUNDED THROUGH PROBATE
As the name suggests, a “testamentary” trust is created in a testament — either a will or an addendum to a will called a codicil. Although the terms of a testamentary trust are established in the will, the trust itself does not come into existence until after the death of the testator (the person whose will created the trust). Specifically, the will must be admitted to probate and the trust is established by a court order in the probate proceedings. A court order also funds the trust, by placing the assets into the trust (usually at the time the trust is established).
Many people want to establish trusts to avoid the time and costs associated with probate proceedings. A testamentary trust is not the right choice for this situation, because it does not allow the trust estate to avoid probate.
The one exception is a “pour over” provision, which can operate outside of probate, on the death of the settlor/decedent, where the assets being poured into the testamentary trust are of a nature that normally would not be subject to probate. For example, death benefits payable by an employer, the proceeds of an insurance policy, and similar assets.
INTER VIVOS TRUSTS ARE CREATED AND FUNDED DURING A SETTLOR’S LIFE
“Inter vivos” is Latin for “during life,” and an inter vivos trust is created and funded during the settlor’s life. (“Settlor” simply means “the person who establishes a trust.”)
Inter vivos trusts can be revocable, which means that the settlor can revoke or terminate the trust at will during his or her lifetime, or irrevocable, which means the trust cannot be revoked or canceled by the settlor (or at all) except in certain very narrow legal circumstances. Revocable and irrevocable trusts are governed by different sets of rules, and have different tax effects and tax consequences. For example, the trust estate (trust assets) of a revocable trust still are deemed to belong to the settlor for the duration of the settlor’s life, whereas different rules can apply to ownership (and control) of irrevocable trusts.
Sometimes, inter vivos trusts are also called “living trusts” – a term that also is used to describe certain other types of trusts created during a settlor’s lifetime.
Generally speaking, most inter vivos trusts can be administered without probate proceedings after the settlor’s death; assets placed in the trust properly during the settlor’s lifetime normally do not have to go through probate. Instead, the trustee can manage and distribute the trust assets without court supervision, in accordance with the terms of the trust agreement. (However, if the settlor wants the trust administered with court supervision, the settlor can include that as a requirement in the trust agreement, in which case court supervision generally will be required.)
GET LEGAL ADVICE BEFORE FORMING OR TERMINATING A TRUST
No matter which type of trust you think you want, it’s important to obtain legal advice from an experienced trust attorney before creating or modifying any trust. It’s also important to ensure that people who enter into or modify trust agreements understand the consequences of their actions fully before and at the time the documents are signed. A trust or an amendment may be ineffective if the person signing the documents does not understand the consequences properly; in addition, it is illegal for a third party (including a relative) to exercise certain kinds of influence or control over the settlor of a trust, either at the time of trust creation or at the time the trust is modified. If you believe this situation has occurred, consult an experienced lawyer promptly for an evaluation of the situation, and potential rights and claims.
***
Disclaimer: THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY, AND DOES NOT CONSTITUTE LEGAL ADVICE OR CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN THE AUTHOR OR ROSS LAW AND ANY PERSON. Your legal rights and experiences may vary. Never use an online article (including this one) to evaluate your legal rights or claims. Consult an experienced attorney promptly to obtain a personalized evaluation of your claims, potential damages, and the various legal rights and options available to you.
You may lose or compromise your rights if you delay in consulting legal counsel. Most legal claims (and defenses), as well as legal and court procedures, are complicated and fact-dependent. If you believe you have a claim against someone who injured you, a lawyer who represented you in a previous lawsuit, or any other legal claim, consult an experienced lawyer immediately for an evaluation of your individual rights and claims.
