Trust Law/Level I · The idea of a trust/1.3 How trusts arise/Lesson 7
Living or at death: inter vivos and testamentary
The two distinct moments a trust can be born: while you are alive or when you die.
Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.
The lean path
The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.
- The cheapest plan for many: a simple will plus payable-on-death and transfer-on-death designations, adding a testamentary trust only for minors’ shares; whatever passes under the will still goes through probate.
- Testamentary trusts cost less now but are funded through probate: in California statutory attorney fees on a $500,000 estate reach $13,000 (Probate Code §10810), and the will becomes public.
- A living trust avoids that cost and keeps terms private only for assets actually retitled into it; its successor trustee also takes over on incapacity without waiting for a court-appointed conservator.
- For a child’s inheritance without any trust, a custodian under the Uniform Transfers to Minors Act can hold it until 21 for gifts made by will (§20 as enacted in Massachusetts); the child then takes full control.
- California’s free fill-in statutory will (Probate Code §6240) cannot create a trust; its own instructions send anyone wanting a trust for children to a lawyer, so use it only for simple estates.
MaterialsA copy of your current will, if you have oneThe last page of a bank account agreement showing ‘payable on death’ optionsA printed list of assets currently held in your name alone versus jointly
Wonder
- What happens to the money in my house if I die without putting it into a trust?
- Why would anyone choose a trust that only starts when they are dead instead of one that starts now?
- If I change my mind about who gets what, can I still edit a testamentary trust?
Explore
- Every trust is born at one of two moments: while the settlor is alive, or at the settlor’s death. The moment matters because it decides who can change the trust, whether a court is involved, and how property gets into it. A trust made during life can start working at once, including if the settlor later loses capacity. A trust made by will does nothing until the will is proved after death. This lesson sets the two side by side; Level III covers each in depth.
- An inter vivos trust is created during the settlor’s lifetime; inter vivos is Latin for ‘between the living’. It can be revocable or irrevocable. A revocable living trust lets the settlor change or end it while alive, which is why it is the most common family trust in the US. In US states that follow the Uniform Trust Code, and in California, a trust that does not say whether it is revocable is treated as revocable.
- A testamentary trust is created by a will and only comes into existence upon the death of the testator, the person who wrote the will. It is funded from the deceased’s estate after debts are paid. Because it springs into being at death, a testamentary trust is irrevocable by definition; you cannot change it once you have died. The will specifies exactly what assets go into this new trust and who manages them for the beneficiaries.
- Probate is the court-supervised process of validating a will and distributing an estate. Assets placed in a funded inter vivos living trust generally bypass probate, passing directly to beneficiaries according to the trust terms. However, assets that remain outside the trust at death must go through probate if they pass via a will. A ‘pour-over’ will moves leftover assets into the trust, but those specific assets still incur probate costs and delays before entering the trust.
- Living trusts are usually private, because they are not filed with a court the way a will is in probate. They also allow continuous management if the settlor becomes incapacitated: a named successor trustee takes over without waiting for a court to appoint a guardian or conservator. Testamentary trusts are often used for simpler goals, such as holding an inheritance for children until a set age, and cost less to set up because they are written into the will.
- Choosing between them comes down to privacy, control during life, and cost now versus later. A living trust takes more effort up front, since every asset must be retitled into it, and assets left out still go through probate. A testamentary trust is cheaper to create, but everything it holds passes through probate first, and in some states the trust stays under the probate court’s supervision afterwards. Neither is better for everyone; Level II looks at whether a trust is needed at all.
Key facts
- A testamentary trust is irrevocable by definition because it only exists after the settlor’s death.
- An inter vivos trust can be either revocable or irrevocable, depending on its terms.
- Funded inter vivos living trusts usually avoid probate for the assets actually transferred into them.
- Testamentary trusts are created and funded through the probate process of a will.
- In Uniform Trust Code states and in California, a trust that is silent on revocability is treated as revocable.
- A pour-over will moves leftover assets into a living trust, but those assets still pass through probate first.
Exercise nine, six, three, one
9CollectGather 9 specific items from your current life: three assets you own solely, two assets you own jointly with another person, one insurance policy name and beneficiary designation, one bank account type, one vehicle title holder, one digital asset login owner, one piece of jewelry or personal property of significant value, and one wish for who should manage these if you were incapacitated.
6ClusterSort the 9 items into 6 categories based on how they would currently transfer at death: 1) Assets that pass automatically by contract (like joint accounts), 2) Assets that pass via beneficiary designation (like insurance or retirement), 3) Assets that go through probate if no trust exists, 4) Assets already in a revocable living trust, 5) Assets in an irrevocable trust, and 6) Personal property of negligible value not covered by specific documents.
3DistillReduce the 6 categories to 3 groups representing your current estate’s exposure: Group A is assets protected from probate and public record; Group B is assets that will trigger a probate process at death; and Group C is assets where you have no clear documentation of intent for transfer or management during incapacity.
1CrystallizeWrite 1 sentence on which moment, life or death, would suit what you want a trust to do, and why.
Fact check
Dates, figures and claims checked against the published sources listed below.