We can all agree that estate planning is one of the most important processes for people who wish to protect their assets and determine what will happen with them in the future. However, when you start researching different estate planning options, you may encounter a wide array of terms that can be challenging to understand.
Two options people commonly consider are lifetime trusts and will trusts. Although both can help you manage and protect assets for beneficiaries, they function at different moments and can serve different purposes.
The main idea is that a lifetime trust is generally created and becomes effective during your lifetime. On the other hand, a will trust is established through provisions inside a will and generally comes into effect after the person who created the will passes away.
Understanding the differences between these options can help you determine which approach may be suitable for your specific needs. In further article, we will talk about lifetime trusts and will trusts, their purposes and the most important differences. Let us start from the beginning.
Things to Know About Lifetime Trust
You should remember that a lifetime trust is created while the person establishing it is still alive. Therefore, you may also encounter the term “living trust” when researching this particular option.
The person creating the trust can transfer specific assets into it and establish instructions regarding the way these assets should be managed. A trustee is responsible for managing the assets based on the terms of the trust.
Depending on the type and structure, lifetime trusts can contain property, investments, money and other valuable assets. We recommend you to click here to learn more, which will provide you with more info.
One of the most important factors is that the trust exists during your lifetime. It means it can provide a framework for managing specific assets immediately instead of waiting until your death.
Things to Know About Will Trust
Compared with a lifetime trust, a will trust is created through instructions contained inside a will. The trust does not operate during the person’s lifetime in the same way as a lifetime trust because it generally takes effect after death.
For instance, someone may use a will trust when they wish to leave assets for minor children instead of allowing them to receive everything directly.
The will can provide instructions regarding the assets that should enter the trust, beneficiaries and the people responsible for managing everything.
A trustee will then manage the relevant assets based on instructions established in the will. The process can continue until specific conditions are fulfilled, such as a beneficiary reaching a certain age.
The Timing is Different
The biggest difference between lifetime and will trusts is the moment they become effective.
As mentioned above, a lifetime trust is created while you are alive. As soon as you establish everything and transfer relevant assets into it, the trust can begin operating based on its terms.
A will trust functions differently because the instructions are contained in your will and the trust generally begins after your death. Check out this guide: https://www.wikihow.com/Make-a-Living-Trust to learn how to make a living trust.
Therefore, if your goal is to establish a structure for managing assets while you are still alive, a lifetime trust may offer features that a will trust cannot provide during the same period.
The appropriate choice depends on what you wish to accomplish, which is vital to remember.
Asset Management
Another important consideration is the way assets are managed.
When you decide to create a lifetime trust, assets placed inside it can be managed by the appointed trustee during your lifetime based on the terms you establish.
This particular feature may be useful when someone wants another person to manage specific property or investments. Depending on the trust structure, arrangements can also determine what happens if the person who created it can no longer manage their affairs.
A will trust, on the other hand, deals with assets after death. The trustee manages the assets that enter the trust according to the instructions included within the estate plan.
Both options involve trustees, but the timing and purpose of their responsibilities can be significantly different.
Beneficiaries
It does not matter whether you decide to create lifetime or will trust, because beneficiaries are essential factors you should consider throughout the process.
A beneficiary is a person or entity that will benefit from assets held inside the trust. You can create specific instructions regarding the way and moment beneficiaries can receive money or property.
For instance, parents may not want minor children to receive a significant inheritance immediately. A trust can allow assets to be managed until children reach a particular age or another condition specified by the person creating the arrangement.
Trusts may also be considered when planning for beneficiaries who require long-term asset management or when someone wants additional control over how inherited assets are distributed.
Flexibility Depends on the Type of Trust
You should know that not every trust functions following the same principles. Some lifetime trusts may be revocable; meaning the person who created them can change or cancel them under relevant conditions.
Other trusts may be irrevocable, which generally means changing the arrangement can be considerably more challenging. Will trusts can also be structured in different ways depending on the goals of the person creating the will and the needs of beneficiaries.
This is why you should avoid assuming that choosing a trust automatically creates a specific legal or tax result. The exact terms and applicable laws will determine how everything functions.
Final Word
As you can see from everything mentioned above, lifetime trusts and will trusts may have similar goals, but they operate following different timelines.
A lifetime trust is established while you are alive and can begin managing assets during your lifetime. A will trust is created through provisions in a will and generally becomes effective after death.
The main idea is to understand your specific goals before choosing either option. When you determine what you wish to protect, who should benefit and when assets should be managed or distributed, you can create an estate planning strategy that reflects your requirements. It is as simple as that.
