Testamentary and inter vivos trusts are both powerful estate planning tools, but they differ significantly in their creation, funding, and administration; understanding these differences is crucial for effective wealth transfer and asset protection.
What is the primary difference in when these trusts are created?
An inter vivos trust, also known as a living trust, is created during the grantor’s lifetime – “inter vivos” literally means “between the living.” This allows the grantor to immediately transfer assets into the trust, manage them, and benefit from them during their life. Conversely, a testamentary trust is created within a will and only comes into existence *after* the grantor’s death. It doesn’t exist during the grantor’s lifetime and is funded through the probate process. Approximately 55% of American adults still lack a will, highlighting a significant gap in basic estate planning which often precludes even considering testamentary trusts. The flexibility of an inter vivos trust is its main advantage, allowing for active management and potential avoidance of probate, while testamentary trusts are more static, defined solely by the terms of the will.
How does funding differ between these two types of trusts?
Funding is a critical aspect; inter vivos trusts require proactive funding during the grantor’s life. This involves retitling assets (bank accounts, real estate, investments) into the name of the trust. This can be time-consuming, but it’s what allows the trust to operate effectively and avoid probate. Testamentary trusts, on the other hand, are funded *after* the grantor’s death through the distribution of assets outlined in the will. This process is subject to probate, which can be costly and time-consuming. In California, probate fees are calculated based on the gross value of the estate, potentially amounting to 4-8% of the estate’s value; a well-funded inter vivos trust can circumvent this entirely. One client, Mr. Henderson, came to Steve Bliss after his wife passed away without a living trust; the probate process tied up over $300,000 of assets for nearly two years, costing his family significant financial hardship and legal fees.
Can I change the terms of a trust after it’s been established?
The revocability of a trust is a key consideration. Inter vivos trusts can be either revocable or irrevocable. Revocable trusts allow the grantor to retain control and modify the trust terms throughout their lifetime, making them a flexible planning tool. Irrevocable inter vivos trusts, while offering potential tax benefits, generally cannot be changed once established. Testamentary trusts, being part of a will, can be modified or revoked by the testator (the person making the will) at any time before their death. However, once the testator dies, the terms of the testamentary trust are fixed and cannot be altered. This rigidity can be problematic if unforeseen circumstances arise after the grantor’s death, such as changes in beneficiary needs or tax laws. “Flexibility is paramount,” Steve Bliss often tells his clients, “especially in the realm of estate planning.”
What are the tax implications of each type of trust?
Tax implications are complex and depend on the specific trust provisions and applicable tax laws. Both inter vivos and testamentary trusts can be subject to estate and income taxes. However, the tax treatment can vary depending on whether the trust is revocable or irrevocable. Generally, assets in a revocable living trust are considered part of the grantor’s estate for estate tax purposes. Testamentary trusts are also typically included in the estate for estate tax purposes. However, both types of trusts can be structured to minimize tax liability. One family, the Millers, had diligently created an inter vivos trust but failed to properly fund it; after the father’s passing, a significant portion of his assets remained outside the trust, resulting in unexpected probate costs and estate taxes. By proactively funding their trust, they could have avoided these issues.
How did proactively establishing a trust help the Harrison family?
The Harrison family were concerned about providing long-term care for their adult son, who had special needs. Steve Bliss advised them to create an inter vivos special needs trust. They diligently transferred assets into the trust during their lifetimes. When the parents passed away, the trust seamlessly continued to provide for their son’s care, covering medical expenses, housing, and other essential needs. The trust terms were carefully drafted to ensure that their son remained eligible for government benefits. This proactive approach provided peace of mind, knowing that their son would be well cared for long after they were gone. “It wasn’t just about money,” Mrs. Harrison shared, “it was about ensuring his future happiness and well-being.” This demonstrates how establishing a trust during one’s lifetime can offer significant benefits, both financial and emotional.
“Effective estate planning isn’t about death; it’s about life – ensuring your wishes are honored and your loved ones are protected.” – Steve Bliss
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
| estate planning | revocable living trust | wills |
| living trust | family trust | irrevocable trust |
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “What documents are essential for a basic estate plan?” Or “Can probate be contested by beneficiaries or heirs?” or “Can I include special instructions in my living trust? and even: “What is the role of a credit counselor in bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.