Estate refers to the inventory of an individual’s assets and properties at his death. Various assets such as real estate properties, vehicles, even financial statements, investments, bank accounts, insurance, and any other personal belongings of a person from the Estate of the person. Till now, we understood about the Estate, and now it’s time to understand trust, and soon we will share the difference between a trust and an estate.
Trusts are legal entities that will assume ownership of or own some assets after a specific triggering event. A trust involves information on how investments in the trust should be handled and distributed. Trusts do not go through a probate process and thus remain private. Trusts unlike will protect against certain taxations, litigation, or creditors.
Every trust has four basic requirements or elements. That will require to satisfy when drafting or forming a trust. It includes trustee, trust property, trust documents, and known or actual beneficiaries.
Types of trusts
There are two types of trusts based on when they take effect. Living trusts are trusts that take effect while the grantor is still alive. On the other hand, Testamentary trusts take effect after a person dies.
- Testamentary trust
A testamentary trust has been established using a will and comes into effect at the time of death. A typical example of a testamentary trust is a trust set up by parents for minor children for funding needs for welfare, health, and education of the children until a future date after the death of parents.
- Living trust
People set up living trusts when they are alive, and there are two main types.
- Revocable Trust
- Irrevocable Trust
A revocable trust transfers property ownership into the trust. But the grantor retains the power to alter, amend, or terminate the trust and its assets.
This asset does not necessarily save estate or inheritance taxes as the grantor receives the income, with distributions of assets to beneficiaries at death.
An irrevocable trust cannot be altered, amended, or terminated by the grantor once it has been set up. The property transfer is complete without retaining power over the trust or its properties.
Difference between a trust and an estate, as per an estate planning lawyer
Trust and estates, as per the Estate planning lawyers, are both entities that exist for the distribution of assets, but they differ in terms of how this asset distribution takes place. Trusts can be created when the grantor is alive, and he is the one who makes the arrangements regarding the distribution of assets during the formation of the trust.
Estates, on the other hand, only become operational after the grantor’s death. An Estate of an individual is the assets he has amassed during his life at the time of his death. An estate can exist without a trust or a will, but in the case of a Trust, you create a trust to protect the assets which form your Estate. Thus, faith can not exist without an estate or investments.
Not having any estate would mean you have nothing of value that needs to be handled and distributed. It would mean that one of the four essential elements required to form a Trust would not be fulfilled, that is, the Trust property.
Without any estate, a trust holds no value or meaning, as it would have no purpose. Therefore, a trust document helps to preserve these assets in the Estate and can help avoid the probate process.
Another difference between a trust and an estate is the basis of how it distributes the assets. A Trust can distribute the help of the decedent over time as the decedent has written in trust documents and can extend to the future in case any assets are to be distributed to kids at a certain age or to unborn children. At the same time, an Estate is a legal entity that requires you to spread the assets on one time basis.
A person’s estate is everything he has owned throughout his entire life, and a Trust is an entity a person can set up to protect his Estate. So that his loved ones will reap the benefits of the Estate that a person has amassed throughout his life.
Trust and Estate go hand in hand with the estate planning process, as a Trust will form for an estate only. This article will help you differentiate between a trust and an estate as per an estate planning lawyer.