What Is a Non Testamentary Trust?

By Kay Lee

A trust is a legal document that allows a trustee to hold property for the benefit of others, known as beneficiaries. Trusts are created when a grantor or settlor asks the trustee, which can be a company or a person, to hold and distribute money or property to beneficiaries. The grantor names beneficiaries in the trust documents, and the money and property in the trust will be distributed based on the grantor’s instructions. For example, a grantor can designate that no money is to be distributed to beneficiaries unless it relates to their health, education or welfare. Trusts typically fall into one of two large categories: testamentary and non-testamentary trusts.

A trust is a legal document that allows a trustee to hold property for the benefit of others, known as beneficiaries. Trusts are created when a grantor or settlor asks the trustee, which can be a company or a person, to hold and distribute money or property to beneficiaries. The grantor names beneficiaries in the trust documents, and the money and property in the trust will be distributed based on the grantor’s instructions. For example, a grantor can designate that no money is to be distributed to beneficiaries unless it relates to their health, education or welfare. Trusts typically fall into one of two large categories: testamentary and non-testamentary trusts.

Testamentary Trust

A testamentary trust is created through a will. Testamentary trusts become effective when the grantor dies. The testamentary trust must be included in the probate process as part of the will and then it becomes effective. Testamentary trusts are revocable; the terms of the trust may be changed at any point during the grantor’s lifetime since the trust does not become effective until after his death.

Protect your loved ones by a legally binding will. Make a Will Online Now

Non-Testamentary Trust

Non-testamentary trusts are called living trusts or inter vivos trusts. These are trusts created during the life of the grantor; they are effective when created or upon the occurrence of a specific event stated within the trust document. Individuals often create non-testamentary trusts to pass property or money to beneficiaries and to avoid the probate process. The probate process can be costly and time-consuming as it can tie up property and money for a year or more.

Creation of Non-Testamentary Trust

When you create a trust, you draft a document stating that you are establishing a trust that holds property or money for the benefit of certain people. You can name anyone you want as the beneficiary, including yourself. The trust will be taxed differently depending on how it is structured. When you transfer property to a trust, you cease to be the owner of that property or money; the trust becomes the owner. You will need to change ownership of property you put into the trust. For example, if you put your house or stocks in the trust, the name of the trust should be listed as the owner. You can also select anyone you like as a trustee and that person will have fiduciary duties requiring him to abide by the terms of the trust.

Revocable or Irrevocable Trusts

Unlike testamentary trusts, non-testamentary trusts can either be revocable or irrevocable trusts. The difference between these two types of trusts is whether the grantor retains the right to change the trust once it has been created. A revocable trust allows the grantor to change the terms of the trust or terminate it. In contrast, an irrevocable trust is a permanent decision to put money or property in the trust with a specific designation; thereby, giving up all rights to the money or property held in that trust.

Protect your loved ones by a legally binding will. Make a Will Online Now
The Difference Between a Grantor & a Beneficiary

References

Related articles

Can a Trustee Revoke or Amend a Revocable Trust in Colorado?

If you are looking for a way for your estate to avoid the costs and complications of a court-supervised probate process after your death, a revocable trust could help. When you put all your assets into a Colorado revocable trust, or living trust, the trust safeguards those assets and pass directly to your beneficiaries upon your death. Revocable trusts give you flexibility because you retain authority to amend or revoke them.

What Happens If the Grantor of a Trust Dies?

What happens to a trust when the grantor, or trust creator, dies depends on the terms of the trust. Since a trust represents a fiduciary relationship regulated by state law, independent of the grantor, a trust can continue in existence long after the grantor dies. On the other hand, when a grantor creates a trust, he may include instructions for an automatic change to, or termination of, the trust when he dies.

What Are the Rules for Changing a Living Trust After a Spouse Dies?

A living trust is a legal vehicle you can use to transfer property upon your death that avoids probate. If you and your spouse create a living trust together, you need your spouse's permission to change trust terms. After your spouse dies, you can only change the part of the trust that relates to your property.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

How Much Money Do You Need to Start a Living Trust?

A living trust is used for estate planning and acts as a holding area for property. The person who creates the trust ...

What if My House Is Not Paid for: Can I Put It in My Living Trust?

A living trust is an estate planning tool that acts as a holding area for property. A grantor -- the legal term for a ...

What Are the Benefits of Placing Property in Family Trusts?

A family trust is an estate planning tool with many benefits, including avoiding probate. A family trust, more commonly ...

Is a Living Trust Liable or Subject to Probate?

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it ...

Browse by category