A trust is a legal document funded with certain assets, managed by a trustee and upon certain stated conditions transfers the assets to named beneficiaries. A living trust is created during a person’s lifetime while a testamentary trust is created under a will during the estate administration process after the person dies. A testamentary trust is not effective until the person’s death. At that time, the trust is created, a trustee appointed and assets are titled in such a way to fund the trust.
A testamentary trust can be established to protect assets for minor beneficiaries or beneficiaries that may need some type of assistance with their inheritance. Putting the assets into a testamentary trust for the benefit of those beneficiaries rather than allowing them to directly inherit the assets affords the decedent with some control of the property and also provides protection for the assets from the beneficiaries’ creditors and potential lawsuits or a divorce. Assets can be held and distributed on any type of schedule granting control over a beneficiary that may be prone to overspending, suffer from addiction or simply need some time to mature.
Funds from a life insurance policy, retirement account or annuity can be deposited immediately into a testamentary trust once it is created at the person’s death. To do that, those accounts would need to name the trust as the beneficiary in the transfer-on-death designations.
A testamentary trust can be modified or revoked during a person’s lifetime simply by changing and updating the language in the will. It may be that parents have a will that creates a testamentary trust for their minor children, but choose to update the will and do away with the testamentary trust once the children reach a certain age. Once the person passes away, the testamentary trust cannot be changed or revoked. The executor is bound by the terms of the will and is required to create and fund the trust.
Discuss the advantages and disadvantages of a testamentary trust with an experienced estate planning attorney. It may be that a living trust will be a better option for your situation and to accomplish your goals. At Stouffer Legal, the attorneys can offer you a side-by-side comparison of how a testamentary trust and a living trust will work for you as well as the procedures and costs involved with each. You can schedule an appointment by calling us at (443) 470-3599, emailing us at office@stoufferlegal.com, or register for an upcoming free webinar using the link below:
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