There are two main types of trusts: inter vivos (living) trusts and testamentary trusts (also known as trusts mortis causa). Both serve to manage assets, but they differ in their creation, purpose, and timing.
Inter Vivos (Living) Trusts:
An inter vivos trust is established during a person’s lifetime. The person creating the trust is known as the founder, settlor, or donor. They create a written document called a trust deed, in which they agree to transfer certain assets to one or more appointed individuals, known as trustees. The trustees are responsible for managing these assets according to the terms of the trust deed.
- Creation: The trust is formed while the founder is alive.
- Purpose: The founder can transfer assets during their lifetime for purposes such as estate planning, asset protection, or tax benefits.
- Trustees: The trustees are appointed to manage the assets and act according to the instructions in the trust deed.
Testamentary Trusts:
A testamentary trust is created through a person’s will after their death. The person creating the trust is known as the testator, and they specify in their will the assets to be transferred into the trust, the appointed trustees, and the conditions for the trust’s operation.
- Creation: This trust only comes into existence after the death of the testator, and only if the conditions stipulated in the will are met.
- Purpose: It is typically used to manage the inheritance of beneficiaries, such as minors or individuals who may not be capable of managing their inheritance.
- Conditions: For example, a trust may be created for a child under a certain age, and the trust will only be established if the child is still under that age at the time of the testator’s death.
Key Similarities and Differences:
- Both types of trusts define the aims and objectives of the trust and specify the beneficiaries who will receive income or capital from the trust.
- Trustees in both cases are obligated to manage the trust’s assets for the benefit of the beneficiaries, following the terms of the trust deed or will.
- A trust, whether inter vivos or testamentary, does not have legal personality. It is a collection of assets and liabilities managed by the trustees. The trustees, not the trust itself, have the legal capacity to act on behalf of the trust.
Trust Deed vs. Will:
- Trust Deed (Inter Vivos Trust): The document that creates the trust during the lifetime of the founder.
- Will (Testamentary Trust): The legal document that establishes the trust after the testator’s death.
In both cases, the trust serves as a mechanism for managing assets, ensuring that they are distributed according to the wishes of the founder or testator, and that the beneficiaries are provided for in a structured manner.
