Trusts provide a legal means for managing and distributing assets. In Kentucky, two common types of trusts are testamentary trusts and living trusts. Both serve important purposes but work in different ways.
What is a testamentary trust?
An individual must create a testamentary trust through a will, and it only takes effect after the person who created it (the testator) passes away. The will outlines the trust’s terms, including who will manage it and who will benefit from it. This type of trust often helps manage assets for children or others who need financial oversight.
One key feature of a testamentary trust is that it goes through probate, which is the court process for settling a person’s estate after death. This process can take time and may involve some costs, but it allows the court to ensure the trust follows the instructions in the will.
What is a living trust?
A person can put a living trust into effect before death. It allows the transferal of assets into the trust and their management during one’s lifetime. Testators can also name a successor to take over management when they pass away or become unable to handle the trust themselves.
However, living trusts do not go through probate, so assets in the trust can go directly to the beneficiaries, saving time and reducing costs. Living trusts can also provide privacy because they are not part of the public record the way a will is.
Living trusts can be revocable or irrevocable. A revocable trust allows the creator to make changes or cancel it at any time. On the other hand, it is typically impossible to change an irrevocable trust, but it can offer more protection from taxes and creditors.
Deciding between a testamentary trust and a living trust depends on one’s situation. For a simple way to provide for beneficiaries after death, a testamentary trust may work. To avoid probate or to manage assets during one’s lifetime, a living trust may be better.