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The creation and implementation of trusts is an important component of modern estate planning practice. Inter vivos and testamentary trusts are frequently utilized to accomplish estate planning objectives in coordination with a will and other instruments. A trust is particularly useful in providing flexibility in the management and distribution of assets over time.
A trust is a fiduciary arrangement whereby a “grantor” transfers property to a “trustee” for the benefit of “beneficiaries.” A trustee holds legal title to the assets placed in the trust, and follows the grantor’s directions regarding the distribution of property to beneficiaries.
An “inter vivos” or “living trust” holds title to the grantor’s property during his lifetime. These trusts operate so that trust property is used for the benefit of a beneficiary, with provisions for disposition upon death. An inter vivos trust may continue to exist beyond the grantor’s death, so that the trust property does not change ownership. This alleviates the probate process for trust assets.
A “testamentary trust” is created by will, and is created upon the death of the decedent. This type of trust is commonly used where the testator wants to provide for minor children upon death. A testamentary trust operates to manage assets for the benefit of a beneficiary, ensure well-being and education, and make distributions of principal at designated times.