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.

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.

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.

Protect your loved ones. Start My Estate Plan

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. Start My Estate Plan
How Does a Blind Trust Work for Lottery Winners?


Related articles

The Difference Between a Grantor & a Beneficiary

Grantor is the legal term for a person who creates a trust, and beneficiaries are people named by the grantor to benefit from the trust by receiving the trust's property. The legal terms "grantor," "settlor," and "creator" have the same meaning and can be used interchangeably. A grantor and beneficiary have different roles in a trust, but either may serve as trustee of the trust. Although the grantor establishes a trust and may have the authority to change it, beneficiaries also have authority to amend or revoke the trust and take legal action to protect the trust in certain circumstances.

How to Fill Out an SS-4 for a Special Needs Trust

A special needs trust is used to provide for the needs of an individual with a disability. It ensures that government benefits are properly spent and allows family members and others to put money aside to continue care into the future. The trust is an independent entity and must file income tax returns, just like a business. To file tax returns with the Internal Revenue Service (IRS), the trust must obtain a taxpayer identification number (TIN), also known as an employer identification number (EIN), that the IRS will use to track the trust while it remains in existence.

How to Title Assets for a Trust

Transferring property from yourself to your revocable or irrevocable trust is known as funding the trust. Only assets that are properly titled to the trust can avoid probate at your death. Exactly which assets you should transfer, depends on your financial picture -- but how you title the assets is the same for various trusts.

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

Related articles

Do It Yourself Last Wills & Trusts

Last wills and trusts are two ways to distribute your property after you die. A will and a trust may be used together ...

How Many Successor Trustees Can Be on a Living Trust?

A living trust is a legal document that enables you to transfer property at your death without sending it through ...

How to Terminate a Living Trust

Any trust that you establish during your lifetime is a "living trust." Living trusts can be revocable, which means that ...

Special Needs Trusts Vs. Revocable Trusts in Connecticut

In Connecticut, a revocable trust, also known as a "living" or "inter vivos" trust, allows you to put your assets in ...

Browse by category
Ready to Begin? GET STARTED