Types of Trusts
Trusts may be categorized in many ways. One useful way to differentiate between trusts is intervivos and testamentary. An intervivos trust is simply a trust which is created during life. Another name for an intervivos trust is a living trust. A trust need not have intervivos or living in its title. A trust, intervivos or testamentary, may be named whatever is desired by the client, as long as it is not misleading or in violation of copyright, for example.
Conversely, a testamentary trust is one created at death. A testamentary trust is, by its nature, not revocable by its grantor. Of course, the document creating the testamentary trust might be revoked prior to the death of the grantor. For example, a Will could create a testamentary trust. The Will could be revoked during the life of the testator/grantor and a new Will could be drafted which has different terms for the testamentary trust. One major downside of a testamentary trust is that it has to go through probate in order to be created. A living trust, conversely, is created right away. If you are concerned with the length and cost of probate, you do not want to create a testamentary trust. Rather, you want to create a living trust.
An intervivos trust might be income taxed to its grantor. A testamentary trust is not income taxed to the grantor. (We’ll discuss more on the income taxation of trusts in a future post).
Intervivos trusts may be either revocable or irrevocable. In some states, if a trust does not specify whether or not it is revocable, it is revocable. In other states, a trust is irrevocable unless specified otherwise. Therefore, it is always prudent to specify whether a trust is revocable or irrevocable.
A revocable trust means that it may be modified or revoked by the grantor during life while the grantor has capacity. A revocable trust may also be restated. A restatement leaves the shell of the trust but guts the substantive provisions and replaces them with the new ones. When a trust is created, assets are retitled into the name of the trust. If one simply does a new trust, the assets would need to be retitled into the new trust. A restatement obviates the necessity of retitling the assets into a new trust because the old trust still exists, only its terms have changed. Typically, a restatement is more convenient than amendments which require referencing back to the original trust and may be cumbersome.
Also, when amending a trust, the drafting attorney risks being liable for any errors in the drafting of the underlying document. This is fine if the drafting attorney’s firm drafted the underlying document and has that liability anyway. However, if someone else drafted the underlying document, then a restatement is typically the best route to go. Otherwise, it is necessary to go through the original document with a fine-tooth comb to ensure there are no drafting errors in its language. If you are doing a restatement, errors in the language of the original document become irrelevant as the underlying document has been replaced in its entirety. Only the shell has been retained and the restatement document has added all new substantive provisions. As a result, restating a trust is often far more efficient and less time-consuming than amending a trust.
How can I decide if a Trust is right for me?
Call today to schedule your complimentary estate planning consultation with Ed Matthews.
Ed Matthews is one of only a few attorneys in the state of Minnesota who is also a currently licensed Certified Public Accountant (CPA). Ed graduated summa cum laude from William Mitchell College of Law in 2003, where he served as Executive Editor of the Law Review. He is a former Minnesota Supreme Court law clerk. Perhaps, most importantly, he does not practice probate! Instead, he has dedicated his life to helping Minnesota families avoid probate and protect their hard-earned assets.
To schedule a complimentary consultation with Ed Matthews, call (651) 501-5608.
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