As you build a family and acquire assets, it's time to start thinking about what you want to happen when you pass away. Although the thought of this might seem morbid, ensuring that your loved ones are provided for is important. Trusts are typically used as a method of estate planning. Once established, a trust is a separate legal unit that owns property and assets that you transfer into the account. Testamentary trusts are used in conjunction with your will and can be dissolved if you wish.
Trust Accounts
There are two main types of trusts: living and testamentary. Living trusts are valid and operating during your lifetime. They are either revocable -- meaning you can make changes, or irrevocable -- meaning no changes are allowed. Three parties are involved in a trust account: you, the trustee and the beneficiary. A trustee is the person appointed to be in charge of carrying out the instructions of the trust for property distribution. Generally, with a revocable living trust, you act as the trustee until you die, then the person you name as the successor trustee takes over. The beneficiary is the person who receives the assets in the trust.
Testamentary Trusts
A testamentary trust account is created as a part of your final will and testament, and it only goes into effect when you die. Until your death, there is no trust account, just the instructions to form it. In your instructions, you list what property you want to be transferred into the trust, and name the beneficiaries and the trustee. A common scenario for a testamentary trust is to leave behind assets to minors.
Dissolving Testamentary Trusts
Because the trust is technically not valid until you pass away, you have the right to modify or completely dissolve the trust at any point during your lifetime. If your life changes significantly, or the instructions in the trust no longer make sense, you can simply change the way your will is worded. Upon your death, the trust is then generally irrevocable. If you wish to incorporate an option for changes after your death, you must state that within the original instructions.
Factors to Consider
Family law attorneys can advise you on the options you have to plan for your family's future after you're gone. If you use an attorney to prepare your will and testamentary trust, he can also help you dissolve it at a later date. Using an attorney ensures that the legal documents are drafted properly and worded to convey your final wishes. Your attorney can also serve as the trustee.