What is a Trust?
A trust is an estate planning tool that supports a Will through a fiduciary arrangement. The document authorizes another person or entity to act on behalf of the grantor (the person who creates the trust). Upon creation, assets are transferred into the trust that takes over their management and ownership.
The grantor appoints a trustee to oversee the management of the estate and everything therein. Trusts are valuable documents for estates of all sizes as they keep families from a lengthy and complex probate process. Skilled and experienced business lawyers in Thornhill take you through the different types of trusts, focusing more on testamentary and living trusts.
What Are the Different Types of Trusts?
Trusts are among the most commonly used tools in estate planning, but they come in different varieties, including:
- Living trust
The differences in the types of trust play a crucial role in how a trust operates in your estate plan. Choosing the most suitable for your estate planning needs can be complex, considering the many factors that come into play. It would be in your best interest to consult reputable Thornhill trust lawyers before making the final decision. They can explain how each type works,
What is a Testamentary Trust?
A testamentary trust is a popular estate planning tool used by people with minor children. It ensures the assets remain well-guarded until the minors attain the age of majority where they can decide for themselves what to do with the property.
Testamentary trusts are created as part of the last Will and testament, providing specific instructions on the structure of the trust. However, a testamentary trust isn’t established until after the grantor’s death. That means it must go through probate for the court to verify and oversee the enforcement of the Will.
Is a Testamentary Trust Revocable or Irrevocable?
A grantor can revoke a testamentary trust during their lifetime because it doesn’t exist legally. The grantor only provides instructions for creating a testamentary trust in the Will. However, the trust becomes irrevocable upon the grantor’s death because they can’t change the instructions.
Consult skilled Thornhill trust lawyers before using a testamentary trust as your preferred estate planning tool. They can explain all that goes into creating a testamentary trust, how suitable it is for your estate planning needs, and how to ensure you meet the federal and state requirements of making it.
When Can I Use a Testamentary Trust?
After evaluating your estate planning needs, your estate planning lawyer can help you make the right decision when choosing between a living and testamentary trust. A testamentary trust is suitable if the following circumstances apply to your situation:
Your Beneficiaries Can’t Manage the Assets
If you have children who are minors or who you think they would have trouble managing the assets, you can put constraints on their inheritance. You could instruct the trustee of the testamentary trust only to have the assets distributed to the heirs once they reach a certain age, complete their education, or start a career.
A testamentary trust is also viable for beneficiaries without financial maturity, who are vulnerable, living with a disability, or addicted to substance abuse. By having the assets paid out later, your wealth can last longer.
Your Beneficiaries Have Debts
If your beneficiaries have debts that make them vulnerable to lawsuits, your best bet would be to use a testamentary trust to prevent the assets in the assets from being seized. In other words, the inheritance will be safe from creditors. The assets are also protected from the division of assets during a divorce affecting one of the beneficiaries.
What is a Living Trust?
A living trust is created and established during the grantor’s lifetime and allows them to access the assets once they’re transferred into the trust. The document outlines how the asset owner wishes their assets to be managed and distributed to the beneficiaries after death. Creating a living trust can be complex, and it would help to have Ontario trust lawyers oversee the process.
Is a Living Trust Revocable or Irrevocable?
A grantor can choose between a revocable and irrevocable trust in creating a living trust. Revocable trusts can be changed, while irrevocable ones can’t. Revocable trusts are more flexible, as the grantor can make changes as their estate planning needs change. Living trusts don’t have to go through probate and have a tax advantage.
Nonetheless, an unfunded living trust is subject to probate, just like a testamentary trust. Unless it receives some assets, the living trust doesn’t legally exist, and the property can only be distributed through the last Will, which the court must verify. Talk to your trust lawyers in Thornhill about how a living trust affects asset distribution before appending your signature.
When Can I Use a Living Trust?
A living trust is suitable for grantors who want their beneficiaries to avoid probate. The trusts are effective in keeping families from extensive oversight of the legal system. The privacy of their assets is better protected by keeping the record away from the public.
Avoiding probate also means the beneficiaries can save on court fees and associated legal costs. For grantors wanting to modify the terms of the trust during their lifetime, a revocable trust could be an excellent choice.
A Skilled Business Lawyer Helping You Make the Right Estate Planning Decision
Trusts are powerful tools that enhance the terms of a Will. Most beginners often create a Will without knowing about trusts, yet trusts are in wide varieties. Once you learn about the different types of trusts, choose between testamentary and living trusts. Each has its share of benefits, and their suitability depends on many factors.
Skilled business lawyers in Thornhill, ON, can help you create the right trust for asset distribution. Our firm has passionate and knowledgeable trust lawyers in Thornhill who can handle all your estate planning needs. We can provide legal counsel and guidance when creating an estate plan. It’s never too early or too late to start. Contact us for a FREE assessment.