The Two Fundamental Types of Trusts
Since recent tax changes imposed by the federal government, it has been a topic of debate whether or not trusts hold the same advantages they used to. It is true that from a tax perspective trusts aren’t as advantageous as they used to be, however trusts can still be valuable when planning for unique family situations.
In the broadest terms, trusts are used to pass money down through generations in a controlled manner. Many families utilize trusts to control how money is dispersed to certain family members and to ensure their loved ones are taken care of when they are gone.
There are two fundamental types of trusts:
Testamentary trusts are often referred to as estate trusts as they are established upon the death of the trustor. Testamentary trusts are stated in ones will. Testamentary trusts are always irrevocable.
There are three parties involved in a testamentary trust. The person who orders the trust in their will is called the trustor. The person responsible for distributing and managing the money is called the trustee. Finally, the person who is receiving the money is called the beneficiary.
Inter Vivos means between living persons. Unlike testamentary trusts which are set up after death, inter vivos trusts are established while the trustor is still living. Living trusts can either be revocable or irrevocable. A revocable trust would mean that the trustor could cancel or change the trust at any time.