Comparing a Living Trust with a Testamentary Trust
This edition of the Koldin Law Center E-Newsletter is part of a series about frequently asked questions comparing legal documents, legal roles, and government benefits.
All prior newsletters are saved on our website. You can read them by clicking here.
We receive many questions from clients and readers of our newsletter asking about the differences between various legal documents, legal roles, and government benefits. In this newsletter we compare the difference between a Living Trust and a Testamentary Trust.
Living Trust
A Living Trust is set up while you are alive.
A Living Trust is a written agreement between you and the person or people you select to be your Trustee(s).
Your Living Trust only applies to those assets that you transfer or retitle into the name of your Trust.
A Living Trust can be either Revocable or Irrevocable. A future newsletter will compare the difference between a Revocable and Irrevocable Trust.
On your death, or whenever the Trust document says that the Trust terminates, the Trustee will then distribute the Trust assets to the beneficiaries you have designated in the Trust document. No Court proceeding is needed to authorize the Trustee to distribute to your beneficiaries.
Testamentary Trust
A Testamentary Trust is a Trust created as part of the beneficiary provisions of your Will.
Example 1: John died with a Will that leaves $50,000 to his 5 year old daughter, Mary.
Example 2: John died with a Will that leaves $50,000 in a Trust for his 5 year old daughter, Mary, which names John’s brother, Bill, as the Trustee. Bill has the discretion to use the money for Mary’s health, education, welfare, and comfort. The Trust ends when Mary reaches the age of 25 and Bill must distribute any remaining funds in the Trust to Mary.
In Example 1, Mary would inherit the $50,000. Since she is a minor, in New York State, during the Probate proceedings, the Judge would appoint a custodian to hold the funds for Mary in a Uniform Transfers to Minors Account (UTMA) until Mary reached the legal age of 18 and then the funds would be turned over to Mary.
In Example 2, John’s Will created a Testamentary Trust for Mary. During the Probate proceedings, the Court would direct the Executor to distributed $50,000 to Bill, as Trustee, to set up an account titled in Mary’s Testamentary Trust. Bill would then follow the terms of the Trust established by John’s Will to take care of Mary’s health, education, welfare, and comfort. Once Mary turns 25, Bill would then turn over the remaining funds to Mary.
In Example 1, Mary would have direct access to the $50,000 once she turns 18. This is a very young age.
In Example 2, John used a Testamentary Trust to delay Mary’s control of her inheritance until she reached age 25.
In Example 1, the Court would decide who holds the funds for Mary.
In Example 2, John spelled out exactly who would hold the funds for Mary and what the Trustee’s responsibilities were for providing for Mary.
Many Different Types of Testamentary Trusts
There are many different types of Testamentary Trusts.
Example 2 is typically referred to as a Trust for minors.
Some other examples of Testamentary Trusts that will be reviewed in future newsletters are:
Discretionary Trust
Supplemental Needs Trust
Income for Life Trust
Dynasty Trust
Pet Trust
Beneficiary Trusts as Part of a Living Trust
Beneficiary Trusts can be part of the beneficiary provisions of a Living Trust and this would avoid the need to probate a Will.
A Testamentary Trust and a Beneficiary Trust are basically the same thing.
A Beneficiary Trust is created by the beneficiary provisions of a Living Trust.
A Testamentary Trust is created by the beneficiary provisions of a Will.
For a discussion of Wills, please see our website by clicking here.
For a discussion of Revocable and Irrevocable Trusts, please visit our website by clicking here.
At the Koldin Law Center, P.C., located in East Syracuse, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care.
The Koldin Law Center, P.C. limits its practice to the specific field of Elder Law which includes estate planning and Medicaid law.
Our attorneys are available to discuss your estate planning options, including the advantages and disadvantages of Revocable Trusts and Irrevocable Trusts, along with other estate planning considerations including a Will, Power of Attorney, and Health Care Proxy.
When the Koldin Law Center, P.C. handles a Medicaid case, we not only handle the entire application process, but we also review asset protection options with our clients. We review with our clients who are already in a Nursing Home options to protect some or all of their assets beyond merely establishing Medicaid eligibility.
We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.
There is something you can do.
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Our Attorneys speak to groups throughout New York State as a public service. If you would like to arrange for one of our Attorneys to speak to your group, please contact our office.
We Appreciate Your Referrals
We have been told by many clients who are in a crisis that they wish they had known about our firm much sooner. We are proud of the many families we have helped in times of crisis.
We are also proud of the many families we helped avoid financial crisis by doing estate planning in advance.
We all share the responsibility for making our family and friends aware of the planning options available to them.
Your referral to the Koldin Law Center could make a major difference in the lives of your family and friends if they are someday faced with a long term illness.
Remember that the Koldin Law Center offers many services for clients of all ages. Our services range from basic estate planning such as a simple will to complex estate planning including asset preservation planning.
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