How does a living trust differ from a testamentary trust?

How does a living trust differ from a testamentary trust?

• A. A living trust conveys property only after death
• B. A living trust is established to transfer ownership before death and avoid probate
• C. A living trust requires probate before assets can be distributed
• D. A living trust has no tax advantages over a testamentary trust

Answer: (B)

A living trust is established during an individual's lifetime and serves as a means to transfer ownership of assets before death, facilitating the management of those assets and avoiding the probate process when the individual passes away. By placing assets into a living trust, the individual retains control over them while alive, and upon their death, the assets can be distributed to beneficiaries without the lengthy and costly probate process typically associated with a will. In contrast, a testamentary trust is created through a will and only becomes effective upon the individual's death. This means assets governed by a testamentary trust must pass through probate, which can delay distribution and incur additional costs. The distinction between these two types of trusts underscores the primary advantage of a living trust: the ability to manage and convey property during an individual's lifetime and to avoid probate, providing a smoother transition of asset ownership upon death.

A living trust is established during an individual's lifetime and serves as a means to transfer ownership of assets before death, facilitating the management of those assets and avoiding the probate process when the individual passes away. By placing assets into a living trust, the individual retains control over them while alive, and upon their death, the assets can be distributed to beneficiaries without the lengthy and costly probate process typically associated with a will.

In contrast, a testamentary trust is created through a will and only becomes effective upon the individual's death. This means assets governed by a testamentary trust must pass through probate, which can delay distribution and incur additional costs.

The distinction between these two types of trusts underscores the primary advantage of a living trust: the ability to manage and convey property during an individual's lifetime and to avoid probate, providing a smoother transition of asset ownership upon death.