There are many different types of trust arrangements in use today. We will review those that are most commonly used in estate planning. First, it would be helpful to review some basic trust terminology.

Testamentary vs. Living Trusts

A trust is defined, in part, by whether it was created while the grantor was alive, or upon the grantor's death (by terms of a will).

A living (inter vivos) trust is created and operates during the grantor's life. A living trust allows the grantor to view the trust in operation, and to make changes as experience and changed circumstances suggest. Also, a living trust relieves the grantor of burdens of investment management. A living trust can be either revocable or irrevocable during the grantor's lifetime, but becomes irrevocable at the grantor's death.

A testamentary trust is created within a will. This type of trust becomes effective and irrevocable at the time of death. A testamentary trust becomes part of the decedent's probate estate, and does not result in tax savings during the grantor's life. An individual may choose to use a testamentary trust when he or she is unwilling to give up control of property during lifetime, but wants to plan for distribution to family members via a trust. The trust can provide security and professional management for beneficiaries after the grantor's death.

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