A resident who is executing an estate plan may want to consider including a trust in their estate plan. Trusts can be useful vehicles for passing assets on to a beneficiary. Two basic types of trusts are living trusts and testamentary trusts.
A living trust is established during a lifetime of the person who created it. This person is known as the grantor. The grantor's assets are transferred to the trust and are managed by a trustee.
Living trusts can be revocable, meaning the terms of the trust can be modified by a grantor while the grantor is alive, or it can be irrevocable, meaning that the grantor cannot change the terms of the trust once it is established. However, upon the grantor's death, both irrevocable and revocable trusts will become irrevocable, and its terms will be carried out by the trustee.
Testamentary trusts, on the other hand, are established via a will after the death of the grantor. Explicit instructions regarding the trust are included in the grantor's will, and the trust becomes effective once the grantor passes away. Testamentary trusts are designed to carry out specific estate planning goals, such as preserving part of an estate for a child from a prior marriage or ensuring that the needs of a special-needs beneficiary will be met.
This is only a very broad overview of trusts. There are many different trusts that fall under these two umbrellas that can achieve different purposes. Because the world of trusts is so vast, those who want to include one in their estate plan may benefit from first seeking legal guidance, so they can better understand their estate planning options.