Living and Testamentary Trusts

 

Living and Testamentary Trusts

One of the greatest fulfilment for many people is to leave behind a lasting legacy for the loved ones and or for preferred charitable objects. To achieve these objectives, the usage of living and testamentary trusts is inevitable.

In living trusts, the person who create a trust is called the settlor or trust maker.  In testamentary trust, the person who established the trust is not called the settlor but testator or will maker. 

Living Trusts?

I had previously given more information on these types of trusts in my previous article; which can either be revocable or irrevocable living trusts.

As I had explained, a revocable living trusts can be revoked during the testator life time but becomes irrevocable upon the settlor or trust maker’s death. A revocable trust which is intended to close up after the death of a trustmaker but an irrevocable trust can remain up and running indefinitely after the trustmaker’s death.

An irrevocable living trust is more preferable form of living trust and is employed for preservation of assets and creating certain advantages or efficiencies. In relation to assets protection, the trust assets are transferred to a third party (usually a company) and therefore beyond the reach of creditors.

Testamentary Trust?

A testamentary trust (also called trust will) is a trust that is created before the date of effect, which is the death of the person who creates it (usually called testator/will maker). It is often established through a last will and testament.

The testator establishes this trust arrangement under his Will by declaring a trust over all or some assets in his or estate that will be managed or administered by named executor or other named trustee(s) upon the testator’s death for the benefit of some named beneficiaries.

It is also possible to establish more than one testamentary trusts in a Will- usually covering different types of testator’s assets.

A testamentary trust is a preferred estate planning tools where a Will would be insufficient to deal with certain complexities after the death of a testator. These complexities, inter alia, include:

(a)              Minor Child or children;

(b)              Children out of wedlock or dependents;

(c)               Aged Parents; and

(d)              Wasteful/Spendthrift beneficiaries

In the examples given above, it would be prudent to have a testamentary trust inserted in the Will with instructions given to the Executor/Trustee on the welfare of such beneficiaries instead of having the responsibilities for the care, education, medical care or upkeep (as the case may be) placed on the elusive goodwill of some other principal beneficiaries.

Other situations where a testamentary trust may be advisable is where the testator intends to cater for certain unique wishes or objects after his or her demise like:

(a)              Charitable giving;

(b)              Business Management; and

(c)               Property or Asset Maintenance

Charitable Giving

Where the testator is a philanthropist, he or she may intend to establish a testamentary trust for achievement of certain charitable objects after death. These may include faith- based or environmental causes, relief of poverty, educational or sport sponsorship etc. In such cases, a testamentary trust will ensure that these obligations continue being pursue by the executor or other named trustee(s) after the death of the testator.

Business Management

Having built a successful business, the testator may sometimes have children who lack the professional or business experience or acumen to continue running his or her business in a profitable manner. Moreover, these may have different areas of interest and passion that are completely different from that of the testator. In such cases, the testator may wish to establish a testamentary trust over his business or related assets in his or her Will and   thereby procure the executor of his or her Will or other named trustee(s) to continue running such business in a profitable manner after his or her demise for the benefit of named beneficiaries.

Property or Assets Maintenance

Oftentimes, the testator might want to preserve certain property after his or her demise for the benefit of named beneficiaries, and may wish such property or assets not be sold off after his or her death.  Examples here may include; a family or ancestral home, an exotic building, a family graveyard, or other family assets, heirlooms treasures of sentimental value.

In such a case, the testator may establish a testamentary trust under which the subject property or assets care and maintenance would be placed on the executor or some other named trustee(s). Where the property is immovable, the testator may also instruct the executor/trustee(s) to collect rents upon their death and distribute the net proceeds to designated beneficiaries.

Differences Between Living and Testamentary Trusts

As the name implies, a revocable living trust allows the settlor or the trust maker to benefit as a beneficiary from the trust in their lifetime (either alone or together with others), while entirely passing the property to other beneficiaries upon their demise.

Conversely, a testamentary trust only comes into operation after the demise of the testator, and therefore before a testator’s death, a testamentary trust is just a mere declaration.

A Living Trust allows the settlor to bypass the often expensive legal process of probate, since living trust are not subject to this probate process. Nevertheless, a testamentary trust draws its life from the Will and it is consequently subject to the probate court, which oversees the administration of the trust.

Arising from the above, the decision on whether to create a living trusts or a Will with a testamentary trust will be guided or dictated upon by the unique circumstances of your beneficiaries and the specific objects that you wish to achieve in your estate planning. 

Either way, it is a good thing to consider living trusts or testamentary trust as part of your estate planning tools.

Should you require any specific legal guidance on living trust or testamentary trust, or any other estate planning tools, kindly feel free to contact me via mainacy@gmail.com