Making the decision between a Pour Over Trust and Testamentary Trust can be difficult. Both have their own advantages and disadvantages, which can make it hard to decide which is right for you.
In this personal finance guide, we will compare both options and help you to decide which is the best choice for your needs.
Pour Over Trust Vs Testamentary Trust Table of Contents
What is a Pour Over Trust?
A Pour Over Trust is a trust that is created during your lifetime. It can be used to hold assets such as property, investments, and cash. The trustee of the Pour Over Trust will manage the assets and distribute them according to your wishes.
What is a Testamentary Trust?
A Testamentary Trust is a trust that is created under the terms of a will. It only comes into existence after the death of the person who created it (the testator). The trustees are usually nominated in the will and they have the job of administering the trust and distributing the assets to the beneficiaries.
What is The Difference Between a Pour Over Trust and a Testamentary Trust?
A pour over trust is created during your lifetime, whereas a testamentary trust is created upon your death. With a pour over trust, you can appoint a trustee to manage the property held in the trust during your lifetime. On the other hand, a testamentary trust is managed by the executor of your estate after you die.
The main difference between a pour over trust and a testamentary trust is that a pour over trust can be used to avoid probate, whereas a testamentary trust cannot. Probate is the legal process of distributing a person's assets after they die. If you have a pour over trust, your assets can be transferred to the trust upon your death, avoiding probate.
Another difference between a pour over trust and a testamentary trust is that a pour over trust can be revocable, meaning you can change your mind about it, whereas a testamentary trust is irrevocable. This means that once you create a testamentary trust, you cannot change it.
What Are The Different Types of Pour Over Trust?
There are three different types of pour over trusts:
- Inter Vivos Trust
- Testamentary Trust
- Irrevocable Trust
Inter Vivos Trust
This type of pour over trust is created during your lifetime. You can transfer property into the trust, and you can appoint a trustee to manage the property for your benefit.
This type of pour over trust is created after your death. Your property is transferred into the trust, and the trustee manages the property for your beneficiaries.
This type of pour over trust is created during your lifetime, but it cannot be revoked or changed. You can transfer property into the trust, and the trustee manages the property for your benefit.
What Are The Different Types of Testamentary Trust?
There are two types of testamentary trust:
A revocable trust can be terminated or altered by the settlor at any time.
An Irrevocable trust cannot be terminated or altered by the settlor.
What Are The Advantages of a Pour Over Trust?
One of the main advantages of a pour over trust is that it can help protect your assets from creditors and lawsuits.
Pour over trusts are also much more flexible than testamentary trusts. You can change the terms of the trust at any time, as long as you follow the proper legal procedures.
Another advantage of a pour over trust is that it can provide significant tax benefits. For example, you can avoid capital gains taxes on the sale of assets held in the trust.
What Are The Advantages of a Testamentary Trust?
There are many advantages to setting up a testamentary trust.
One of the biggest advantages of a testamentary trust is that it can help you to avoid probate. Probate is the legal process that is used to distribute a person's assets after they die. It can be a long and expensive process, so avoiding it can be a huge benefit.
Another advantage of a testamentary trust is that it can help to protect your assets from creditors. If you have a lot of debt, your creditors may try to seize your assets in order to get their money back. However, if your assets are in a trust, they may not be able to do this.
Finally, a testamentary trust can also help to ensure that your assets are distributed the way that you want them to be. You can specify exactly who you want to receive your assets, and when they should receive them. This can be a great way to ensure that your loved ones are taken care of after you're gone.
What Are The Disadvantages of Pour Over Trust?
Pour over trusts can be expensive to set up and maintain. They also require more ongoing management than testamentary trusts.
Another disadvantage of pour over trusts is that they can be difficult to change or revoke. Once the trust is established, it can be very difficult to make any changes to it. This can be problematic if your circumstances change or if you simply want to make some changes to the trust down the line.
Finally, pour over trusts can be complex and confusing. The rules and regulations surrounding them can be difficult to understand, which can make it hard to manage the trust properly.
What Are The Disadvantages of Testamentary Trust?
The disadvantages of testamentary trust are that it can be time consuming to set up and fund, and it may not protect your assets as much as you intended. If the value of your estate decreases after you die, the trustee may have to sell assets to cover the debts and expenses of the trust.
Also, if you move to another state, the laws governing testamentary trusts may be different, which could affect how your trust is administered.
So, Which One Should You Use?
It really depends on your specific circumstances. If you want to make sure that your assets go to specific people upon your death and that those people can't squander the money, then a trust is probably the way to go.
On the other hand, if you're not too worried about what happens to your money after you die and you just want the process to be as simple as possible, then a pour-over will probably suffice.
Of course, there are other factors to consider as well, such as the cost of setting up and maintaining a trust, the amount of control you want to have over your assets while you're alive, and so on. Ultimately, it's up to you to decide which option is best for you and your family.
What Are Some Alternatives to Using a Pour Over Trust or a Testamentary Trust?
If you're not interested in using a pour over trust or a testamentary trust, there are other options available to you.
You could create a living trust, which is a revocable trust that can be changed or dissolved at any time. Alternatively, you could create an irrevocable trust, which is a permanent trust that cannot be changed or dissolved. You could also create a charitable trust, which is a type of trust that is used to donate money or property to a charity.
What Are Some Tips For Using a Pour Over Trust?
There are a few tips to keep in mind when using a pour over trust:
- Make sure the property is properly titled in the name of the trust.
- Be sure to fund the trust with all appropriate assets.
- Make sure the trustee has all the necessary information and documentation.
- Keep good records of everything related to the trust.
What Are Some Tips For Using a Testamentary Trust?
There are a few key things to keep in mind when using a testamentary trust:
- Make sure that the terms of the trust are very clear. You don't want there to be any ambiguity about what the trust covers and how it should be used.
- Be sure to consult with a qualified financial advisor to ensure that the trust meets your specific needs and goals.
- Keep in mind that a testamentary trust is only effective after you pass away. So, if you need to access funds from the trust during your lifetime, you'll need to set up a separate arrangement.