Joseph Fedorowsky – Legal Blog

As distinguished from an inter vivos or living trust, a testamentary trust is effective upon the death of its settlor (the person who sets up the trust) and the will is handled through probate. Every state has its own statutory requirements which must be followed when probating or processing a will.

The most typical or common reason for using a testamentary trust is to conserve a decedent’s assets and to transfer wealth. A testamentary trust requires a trustee who administers the res or trust property which comprises a decedent’s estate. The trustee’s responsibilities include the orderly distribution of various property to beneficiaries named in the will, as set out in the trust.

There are substantial tax consequences when probating a testamentary trust. At the time of the decedent’s death, the assets of the trust are subject to estate and transfer taxes. It is the trustee’s responsibility to sort out these issues, generally by working with probate counsel.

The advantage of a testamentary trust is that the settler, the decedent, has a great deal of control over how the estate is distributed. This may well be a significant issue for the decedent, especially when it comes to setting aside the finances for a loved one’s education or maintenance.

Joseph Fedorowsky / Legal Blog

There are a number of ways that trusts are classified. One classic approach is to characterize the trust in relation to the Settlor, the person who established the trust. A Settlor is alternatively referred to as a Trustor, Grantor or Donor.

A trust created during the Settlor’s lifetime is called an inter vivos (within the life of) trust. Today, an inter vivos trust is commonly referred to as a living trust. This is not a new legal creature, just a more user friendly term.

One of the many benefits of a living trust is to avoid probate. That is a court supervised legal process which validates a Will and distributes a Settlor’s property at his or her death. In many states, the probate process is statutory with fixed fees. In addition to avoiding the cost and time to probate an estate, a living will also avoids making a public record and is more private as compared to the probate process.

There are additional advantages to setting up a living trust, including possible tax savings and access to institutional trustees to administer the trust. Using professional trustees can be cost effective and fairly safe.

There are many legal professionals who know the ins-and-outs of living trusts, and can help you determine what is best for your particular situation.

Joseph Fedorowsky / Legal Blog

There are many different types of trusts and different classification criteria used. A trust may be classified based on how long a period of time it exists; on the relationship of the trust and the settler; on the type of property which is placed into the trust; or, on the way the trust was created.

The classification of a trust is more than a mere organizational convenience. While the classification of a trust does not change its essential character, the stated classification of a trust is invariably a significant factor in its treatment and interpretation. For example, there are serious legal repercussions once a trust is established as an irrevocable trust (a classification based its duration or how long a period of time it exists).

Joseph Fedorowsky / Legal Blog