With so many different types of trusts available, Virginia residents may have questions about what the best option is in their situation. Two of the most common types of trusts used in estate planning are the revocable living trust and the testamentary trust. Other types of trusts include irrevocable trusts, family trusts, charitable trusts, irrevocable insurance trusts, living trusts and special needs trusts.
All trusts, regardless of their type, have many things in common. For instance, trusts never enter into probate, which means that the trusts' beneficiaries will receive more of the money intended for them and the IRS will receive less. Also, trusts allow testators to have more control over the disposition of their assets by, for example, allowing them to specify when a beneficiary will inherit a trust's assets and in what manner. Finally, trusts can accomplish goals that wills cannot. For example, trusts can be created with the specific purpose of funding a college education or paying for medical expenses.
Testamentary trusts, in particular, are unique because they are established within a will rather than as a separate standalone document. Parents with young children often use these types of trusts. One main purpose of testamentary trusts is to prevent young children from having complete access to a large sum of money left for them in a will until they reach a certain age. For example, testamentary trusts often provide that if a designated beneficiary is under a certain age, that beneficiary's inheritance will be held in trust, and the inheritance will only be distributed under specified conditions.
Source: The Times of Northwest Indiana, "Estate Planning: Testamentary trusts," Christopher Yugo, July 1, 2012