As you work with your attorney to plan your estate, one tool you may consider implementing is a testamentary trust. This type of trust is created in your last will and testament, with terms specified in the will.

Unlike living trusts, testamentary trusts only start to act after your death. This means you’re able to make changes to the trust at any point in your life—it is only after your death that the trust is irrevocable.

It is similar to other trusts in that it allows you to leave behind stipulations as to how the trust assets will be distributed after your passing. People are most likely to use these trusts if they want to specify a time at which they will leave assets to a beneficiary. Similar to other trusts, a parent might not want a child to receive their inheritance until they turn 18 or graduate from college, for example. Once the beneficiary in question receives the trust assets, the trust automatically terminates.

Who is affected by a testamentary trust?

Each testamentary trust involves three parties: the grantor or settlor (the person who establishes the trust), the beneficiary (the person or entity who receives the trust assets) and the trustee (who handles the trust and manages its assets until the beneficiary inherits).

As mentioned above, a testamentary trust is commonly used to provide for an underage child, while leaving stipulations on the disbursement of trust assets to ensure their responsible use.

The testamentary trust is formed as part of a will, which means the probate court will also be involved to an extent. The court, in determining the authenticity of the will, thereby allows the trust to be created and go into action. The probate court also acts as a sort of oversight body, making sure the trustee is properly handling the trust in accordance with the instructions left behind in the will. The trustee may be required to report to probate court once a year to provide updates.

Why establish a testamentary trust?

There are a number of benefits associated with the use of testamentary trusts. Perhaps the biggest benefit is that it provides the settlor with complete control over when and how the beneficiary receives the trust assets. It gives a guarantee that your assets will be protected until the child is old enough and responsible enough to take charge of the assets.

Another primary advantage of using this sort of trust is that it can be funded with your life insurance proceeds after you pass away. Simply name the trust as the beneficiary of your life insurance policy, and the life insurance policy will pay into the trust after your death.
Is a testamentary trust right for you?

For more information about testamentary trusts, how you can best establish them and why they’re beneficial, contact an experienced estate and elder planning attorney at Baker Law Group, P.C. today.