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This post should help you understand the difference between a testamentary trust and an inter vivos trust.
All trusts are either testamentary or inter vivos. Inter vivos trusts are also called “Living Trusts.”
The best way to describe the difference is to put them in context of a real-life situation.
Let’s say Jack is engaged in his estate planning. He is married to Jill and he has two children. He wants to leave his estate in a way so that Jill is taken care of, but after Jill dies, he wants his estate to go to his two children.
Jack goes to an attorney and the attorney prepares a Will with Testamentary Trust. The terms of the trust are a part of Jack’s last will and testament. Jack’s will says that when Jack dies, Jack’s estate will go to the “Jack Testamentary Trust.”
After Jack dies, Jill and Jack’s kids assume that no probate is necessary because “Jack had a trust.” However, their assumption is incorrect. There will always be a probate (or in called a “Succession”) when someone leaves their assets or estate to a testamentary trust. When Jack dies with a testamentary trust, his assets that are in his name when he dies will be frozen, and the courts must oversee the management and ultimate transfer of the assets to the trust.
Now, instead, let’s say that, instead of Jack creating a testamentary trust, he creates the stand-alone “Jack Inter Vivos Trust” or the “Jack Living Trust,” If Jack transfers his asset to the Jack Living Trust during his lifetime, no Succession or Probate will be necessary when Jack dies because the assets will already be in the trust and there will be no assets in Jack’s name that would be frozen and subject to the court-supervised transfer process.
This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.
Paul Rabalais
Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450…(read more)
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Difference Between Testamentary Trusts and Inter Vivos (Living) Trusts
Trusts are legal instruments that hold and manage assets on behalf of beneficiaries. They provide individuals with the ability to control and distribute their assets in an orderly and efficient manner. Two common types of trusts are testamentary trusts and inter vivos (living) trusts. While both serve similar purposes, there are notable differences between the two.
A testamentary trust is established through a person’s last will and testament, and it does not take effect until the individual passes away. This means that assets are transferred to the trust upon the person’s death and are managed according to the terms and conditions specified in their will. Testamentary trusts are irrevocable, as the individual cannot make changes or amendments to the trust after their passing. The named executor of the will is responsible for creating and administering the testamentary trust.
On the other hand, an inter vivos or living trust is created during the lifetime of an individual. Assets are transferred into the trust while the person is alive, and they can continue to manage and control those assets as the trustee. The individual establishing the inter vivos trust has the flexibility to amend or revoke the trust at any time as long as they are mentally competent to do so. Additionally, inter vivos trusts can be revocable or irrevocable, depending on the preferences and goals of the individual.
One significant difference between the two types of trusts is their timing and effect. Testamentary trusts only come into existence upon the testator’s death, while inter vivos trusts are established and take effect immediately during the person’s lifetime. This means that testamentary trusts cannot be utilized for estate planning during one’s lifetime, while living trusts can provide benefits and asset protection during the individual’s lifetime.
Another significant distinction is regarding probate. Probate is the legal process by which a deceased person’s debts are settled and assets are distributed according to their will. Testamentary trusts must go through the probate process, which can be time-consuming, costly, and subject to public scrutiny. In contrast, living trusts typically bypass probate entirely. Since the assets in an inter vivos trust are already held by the trust entity and controlled by the trustee, upon the individual’s death, the assets can be distributed directly to beneficiaries without the need for probate.
Privacy is another key difference between the two types of trusts. Testamentary trusts become part of public record during the probate process, allowing anyone to access information about assets and beneficiaries. In contrast, living trusts maintain privacy as they are created and managed outside of the probate process.
Lastly, testamentary trusts may provide certain tax advantages, such as potentially reducing estate taxes. On the other hand, inter vivos trusts do not offer the same estate tax benefits but can offer other tax advantages, such as avoiding capital gains tax on appreciated assets when transferred to the trust.
In conclusion, testamentary trusts and inter vivos trusts serve different purposes and have distinct characteristics. Testamentary trusts activate upon the testator’s death, must go through probate, and lack the flexibility of amendment or revocation after death. Inter vivos trusts, on the other hand, are established during the individual’s lifetime, can be amended or revoked, and generally offer probate avoidance, increased privacy, and potential control over assets. It is essential to consult with a legal professional to determine which type of trust aligns with your specific needs and objectives.
Thanks for the video , I have one question about how tax works when assets are transfer in those two kinds of trusts?
So how would one verify that after the first death that things weren't ever accounted for? Per se it being a two-part A and B trust that leaves the surviving party trustee and beneficiary with provisions on withdrawing of the principal but is to collect the income until her passing… Now because the testimony trust never gets recorded before death but is it normal for an inter vivos trust document to be recorded through the county recorders office referencing the existence of said trust recorded through deeds. If I located a joint tendency corporation date of trust and assignment of rent with an issued subparcel number all being connected to our family home what happens to the rights of said corporation that was recorded in 1998 through a joint tendency deed my parents' house had 11 deeds recorded over the last 30 years. All I know is that my dad's entire estate was left into that sub-parcel that I can't seem to get any information on he also was a president of two personal corporations as well as held two separate contractors licenses. As far as I know there was talk of a mortgage corporation that is impossible to find any information on. My two siblings named as code executors in the will have been appointed only on my mother's estate into my knowledge nobody has been appointed on my father as when I showed up in court the case was withdrawn and is still pending. My mother passed in January of 2020 and less than 7 Days of her passing there was four to six quit claim deeds submitted on that sub parcel number and the only place that I get that sub parcel number from is the parcel number that's listed on the corporation deed of trust as well as the personal number I have from the copy of the trust that I had to purchase from my dad's financial advisor who is giving me no information besides allowing me to purchase the trust documents yet he took the guardianship and the important retirement/business documents out and his last word to me was if my siblings aren't communicating with me to take em to court. The issue is I've tried to exercise my rights information I submitted a de-154 on my mother's petition to administer his estate but somehow I am now being told through an email that my ex-party objection to my siblings petition to administer my mother's estate and the request for limited authority the production of trust documents verification of trust assets as well as an accounting and inventory was being requested was I informed that my objection was premature and the record of accounting was also premature as the trustees were just appointed that day. The response to my father's stated (I submitted the same letter in both cases) my father said that it was a petition for spousal property only but that I could initiate the proper trust proceeding in request the documents there. I resubmitted a petition against my siblings and the trust as that's what I believed I was supposed to do and ever since then I've been waiting for a court date. They changed the court date to sooner and it's vastly approaching and I know I haven't filled out the correct paperwork but I don't know what I need to fill out ultimately there's a bank account number that's not been accounted for but has since been removed or closed at the very least I need to account for it so I need to subpoena the documents I don't know if I'm at Liberty to do so. Where should I be looking in what should I be most concerned about as it's been impossible to locate a lawyer that understands my mom was unable to change any part of that trust once the first person died, I've since been told that my brother was labeled as payable on death on all my mom's accounts so how do I get the judge to compel them to furnish me with proof not leaving the burden on me as again I have no idea what they've done but I know that my dad was limited on his information he gave out with his business dealings none of us fully knew what he had and my mom had no idea about the outside world his finances or the businesses all she knew is that she would never leave because she would never be able to make it on her own that as much as I want to say my parents had a loving relationship at the end of the day my dad told me my mom was at $20 bet. I'm almost scared to look for their motives on most of their actions but no enough to know they kept me away from my mom started a huge argument attacking me in a drunken rage saying horrible things about my daughter who was just born premature and receiving SSI (this is my third child the first two have medical issues on top of high health risk due to prematurity as well as family history. I almost feel like somebody has been receiving some sort of benefit or using my children under that maintenance and support line and want to say it's possible it has something to do with the corporation because that's the only thing that makes sense in my head as to why my siblings were so upset with me after my father's passing and that's why my brother attacked my daughter in innocent child infant at this point. Nothing is fully making sense in my world because in 2017 after spending some time caring for my sister who was very ill and unable to walk I found out that my baby daddy initiated Court proceedings had a restraining order against me for him and my children… To do all of this and not even inform me to lie under oath and state that I was served knowing I wasn't but continuing the relationship with me again it doesn't add up makes no sense it's like he never intended for me to find out so what would be the motive for him to do so?? My fiance has said a few things in the past years since then that at the time made no sense but looking back at everything now could have been little hints on what's really taking place as he told me one day what do you have you don't even have a family that loves you I love you I will take care of you he was begging me to come back home the home that they kicked me out of after having a hidden restraining order for 3 months. Anyway he proceeded to ask me what I had to buy a house because he had 50 g's in the bank he was laughing like mocking me but again how in the hell did he have $50,000 I quickly wrote it off as alive and kept it in my memory bank now fast forward back to when my dad died and right after my brother blew up on me my siblings called me over to my parents house and wanted me to come alone knowing that's not going to happen as I was instructed to go to my dad's funeral alone as well and everyone else got to bring their families for support and it's kind of been like a fight between these two families me being stuck in the middle so I found it very hard trying to please or please anyone because it's quite frankly neither size are ever satisfied. Needless to say I showed up of course with my better half who in turn jumped in the truck with my brother which is a big No-No I mean he was given direct orders before we even got there but when we pulled up my ex-boyfriend was there who just so happens to be a lawyer and hook line and sinker I guess we both fell for it before you know it we can't get a hold of them and by the time my baby daddy answered the phone my brother was passed out on the floor that made me lose my s*** the fear of not knowing what was going on and knowing that emotions or extremely unmanageable I called my mother-in-law had her pick me up rush to where they were as my sister boyfriend and my brother the other one we're on their way to get my brother that was ko for some reason I thought there was going to be a big fight but the brother who can't stand me at the moment for being with my baby daddy was saying thank you to him and they were trying to carry him to the car. I went home and that was the beginning to the ending of my relationship with my family and ever since then I've been nothing but lied to regarding the trust it's assets and my rights to accounting. After my father passed away my ID went missing for the better part of four months and then popped up one day in a rob pocket that I've worn 100 times furthermore my brother gave me my father's robe one of them anyway that he used to wear when we were kids that is the only thing that I've been given as the rest of them have gotten cars motorhomes boats jet skis and apparently the businesses and it appears the corporations have been dissolved again I can't get any lawyer to help me not even with advise with where to go from here. I can't tell you that I finally did get a hold of their attorney who in turn seems surprised I was calling an informed me he was not dealing with the trust and was told it was done and dealt with already when I asked him by what attorney he told me Earnest Anderson which is a disbarred attorney and just make things more complicated we found out that my dad was an illegal immigrant about 2 years before he died so the secrets are endless and the answers are short I'm trying to piece together a puzzle I don't even know what the pieces look like and wouldn't recognize them from Adam. Please help me with any advice that you can as a friend not a lawyer please LZESSI@yahoo.com
iam a law student from INDIA and was searching for this meaning…now cleared thanks a ton
Thank you for this excellent video. Your explanation is clear and very helpful.
What having a testaments trust as a beneficiary to a life insurance policy or other account? Will that avoid court supervision even though the assets moved after death?
I'm writing my CFP exam in 10 days and I really appreciate the simplicity of this video. I learn so much better with examples rather than a bunch of technical terms! Thank you!
are the testamentary trust protected from medicaid estate recovery?
Your videos are great. I'm a law student and you make it simple. Every law student should watch your videos before do any coursework or go into deep into the area.
After Jack dies, what keeps Jill (the Income Beneficiary) from spending down the principal in the trust, thereby reducing the benefit to the 2 kids (the Principal Beneficiaries)?
Great video and easy-to-understand
I'm 55 seconds in and my guy has broken down the lingo already. I'm impressed already!