Inter Vivos Trusts vs Testamentary Trusts

Trusts are frequently used in estate planning. A trust can help you avoid probate, provide asset protection for your beneficiaries, and let you retain control over assets after you pass away. Simply put, trusts can do a lot. Because trusts are so versatile, not all trusts are the same. Different types of trusts have different attributes. However, broadly speaking, all trusts fall into one of two categories: inter vivos and testamentary.

What is an Inter Vivos Trust?

An inter vivos trust (or living trust) is a trust that comes into being during the lifetime of the settlor (the person who creates the trust). A common example of this is a living revocable trust used for estate planning. But any trust creating during the lifetime of the settlor is considered to be an inter vivos trust, even if the trust is irrevocable or created for purposes that have nothing to do with estate planning.

What is a Testamentary Trust?

A testamentary trust is created by a last will and testament. If a testamentary trust is created, it means that a will contains a direction to create that trust and that the will itself contains the trust provisions. Because a testamentary trust is created by a will, the settlor (the person whose will makes the trust) is not alive when the trust is created. This is unlike an inter vivos trust, in which the trust comes into being during the life of the settlor.

What is the Difference Between an Inter Vivos Trust and a Testamentary Trust?

The main difference between an inter vivos and testamentary trust is when the trust is created. If the trust is created during the lifetime of the settlor, it is inter vivos. If it is created by the settlor’s will, then it is testamentary. But this main distinction leads to other differences between inter vivos and testamentary trusts.

Because a testamentary trust is created after the death of the settlor, testamentary trusts are always irrevocable. This means that once the testamentary trust is created, it cannot be taken back by the settlor. This is because the settlor is dead! However, an inter vivos trust can be either revocable or irrevocable, depending on how it is drafted.

Another difference is that inter vivos trusts can have the settlor act as trustee. This means that the same person can both create the trust and manage the trust assets. However, if the trust is testamentary, someone beside the settlor will need to be named as trustee. After all, in a testamentary trust, the settlor is dead by the time the trust has been created.

Should I Use an Inter Vivos or Testamentary Trust?

Whether you should use a trust and if so, what kind of trust to use is a matter to discuss with an estate planning and trust attorney. Generally, though, an estate planning attorney will advise that inter vivos trusts be used if the goal is to avoid probate. Because an inter vivos trust is created during your lifetime, you can move assets into the trust before you die, allowing you to keep those assets out of your probate estate. However, testamentary trusts can be useful in other circumstances, such as when your spouse receives Medicaid and you want to set up a Qualifying Special Needs Trust. Alternatively, a testamentary trust can be useful when a living trust is not affordable but you need some way to hold money for your children’s benefit after you die—usually out of fear of creditors, divorce, or reckless spending. But the best way to figure out which trust to use is to talk to lawyer whose practice focusses on estate planning and trust law.