Revocable Living Trust vs. Testamentary Trust – What’s the Difference and Why It Matters

This podcast episode discusses the difference between a revocable living trust and a testamentary trust. A revocable living trust is created during your lifetime, can be changed or revoked, and helps avoid probate. It also provides incapacity protection and is funded while you're alive. On the other hand, a testamentary trust is created after your death through your will, cannot be changed, and must go through probate. It does not provide incapacity protection and is funded after your death. The choice between the two depends on your goals and needs. It is advised to consult an estate planning attorney for personalized advice. Hey there, and welcome back to Livin' in Your Bag's Packed, the show where we talk about planning for life, death, and everything in between. I'm your host, Robert Nimmin, and I stay Planning Attorney Licensed in Maryland and Washington D.C. And as always, this podcast is about preparing for the unknown, and not in a morbid way, but in a way that gives you and your loved ones peace of mind. Because let's face it, none of us is sticking around forever, and when the time comes, don't you want your affairs in order, your wishes honored, and your legacy preserved? Today, we're diving into something that I get asked about all the time, the difference between a revocable living trust and a testamentary trust. These are two powerful tools in estate planning, and knowing the difference can help you decide what's right for you and your family. So let's break it down. We're going to start with a revocable living trust, sometimes called just a living trust or family trust. Now, this is a trust where you create during your lifetime. You transfer assets into it while you're alive, and here's the kicker. You can change it, amend it, revoke it any time you want, as long as you're still mentally competent. You're typically the trustee of your own revocable living trust, which means you still control everything. You can buy, sell, spend, whatever you want. The trust just holds the title, but you're still in the driver's seat. Now, why do people do revocable living trusts? Well, one of the biggest reasons is to avoid probate. You can pass away, and anything in your revocable living trust bypasses the probate process. This means faster distributions, much more privacy, and less hassle for your loved ones. And if you ever become incapacitated, say due to illness or injury, the successor trustee you name can step in and manage your affairs without having to go to court for guardianship or conservatorship. So to sum it up, a revocable living trust is a flexible, private, and efficient way to manage your assets during your life and after death. So what about testamentary trusts? Well, unlike a revocable living trust, the testamentary trust is just that. It's done after you're passed away. It's created in your will. It does not exist until after you die. So what does that mean? Well, for starters, your estate will go through probate, because that's how the will gets validated and the trust then gets activated. Once the probate court gives the green light, the testamentary trust is formed, and assets are distributed into it according to your instructions. People usually set up testamentary trusts when they want to leave money to minor children or to beneficiaries who need oversight, like someone with a disability or poor money management skills. One of the very big differences here is that you don't fund a testamentary trust during your lifetime. Everything happens after you pass away. This also means that there's no incapacity protection during your life. It's just not part of the deal. Another huge difference is that testamentary trusts are typically supervised by the court as part of the probate process. The court can provide various forms of supervision, including determining the trust's validity, accepting and replacing trustees, and ordering the distribution of trust property. So now let's take a look and compare them side by side. With a revocable living trust, it's created during your lifetime. You can change or revoke it. It avoids probate. It offers incapacity protection, and it's funded while you're alive, whereas with a testamentary trust, it's created after your death through your will, can't be changed because you've passed away, must go through probate, or actually created in probate, there is no incapacity protection, and it is funded after your death. Both trusts can be incredibly useful. It just depends on your goals. A revocable living trust is usually the better option if you want a streamlined process, you want to maximize your privacy, and you want control during incapacity. If you don't mind probate, and are mainly looking to set guardrails around a specific inheritance, especially young children, a testamentary trust might be the way to go. Now here's my lawyer disclaimer, none of this is legal advice. Every situation is different, and your estate plan should be tailored to your unique needs. If you're not sure which trust, or whether a trust at all makes sense to you, talk to a qualified estate planning attorney. Yes, even if that's not me. Alright, that's a wrap for today's episode. If you found it helpful, do me a favor, share with a friend or family member who you think needs it here. Trusts can sound intimidating, but with a little knowledge, they're incredibly empowering. Thank you for listening to Living With Your Backpack, I'm Robert Newman, reminding you that peace of mind isn't for some day, it's for today. Until next time, take care, and plan well.