Trust funds are a great way of compounding and building wealth in the long-term. There are two main types of trust funds, and it can sometimes be difficult to understand the differences between the two. These two types are testamentary trust funds, and living trusts. Living trusts are also commonly known as inter vivos funds, and that can lead to some confusion.
This blog will offer a brief walk-through of both testamentary and inter vivos trust funds, how they work and what the differences are.
What are testamentary trust funds?
Testamentary trust funds are trust forms that are formed after the death of the grantor. The grantor would have usually prescribed that a trust fund should be set up in his or her name within his or her will.
The problems that can occur with a testamentary trust fund is that all assets are likely to go through the probate process. This means that outcomes are likely to arise that were not desired by the deceased grantor.
What are inter vivos trust funds?
An inter vivos trust fund, otherwise known as a living trust, exists during the grantor’s lifetime. They may be put into action in various ways. For example, 3 percent of the net worth could be paid out to the grantor’s child from the year that he or she turns 18. The benefit of this is that it gives the grantor much more flexibility and control over how the money is used. The trust can be added to over time, from cash assets to, in some cases, real estate investments.
An attorney can help you determine which type of trust suits your needs, as well as other information about estate planning.
Source: The balance, “Testamentary vs inter vivos trust funds,” accessed Sep. 01, 2017