What Is A Testamentary Trust?


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A testamentary trust is the type of trust established after a person dies. It is established per the terms laid out in the decedent’s will. It can also be used as a way of having greater control over how assets will be managed. A testamentary trust does not exist until the decedent’s will is probated in court.

How Does a Testamentary Trust Work?

As in any trust, a testamentary trust has a trustor who creates the trust and funds it with assets, a trustee in charge of managing the trust, and the beneficiaries that will receive the assets or money in the trust according to the rules predetermined by the trustor. There may be more than one testamentary trust created in each will.

When the creator of the trust writes his or her last will, he or she may choose to include a provision instructing the executor of the will to create a testamentary trust. The will must then go through probate to determine its validity before assets can be transferred into the trust. Once the trust is in place, a trustee will manage it for a predetermined amount of time. For example, the decedent may choose to keep the trust active until the beneficiary reaches the age of 21 or graduates from college. When that happens, the trust will expire, but until then, the probate court will check in regularly to see that the trust is being managed properly.

What Type of Testamentary Trusts Can I Create?

The type of trust you create depends on your objective for the assets you place in it. You may create a family trust to hold assets for your family or a spousal testamentary trust that can hold assets solely for your surviving spouse. You can also create a trust to hold assets meant for a beneficiary who is disabled or has special needs. This is often referred to as aspecial needs trust. The key difference to remember is that all of the types of trust mentioned above can be created during a trustor’s lifetime and be revocable, but when these trusts are created as testamentary trusts, they are irrevocable, meaning they cannot be changed or canceled once created.

What are the Advantages and Disadvantages of a Testamentary Trust?

A testamentary trust gives you greater control over your assets and how they will be spent by your beneficiaries. This is especially favorable if, for example, you have a child who may be immature or irresponsible towards financial matters because you can determine how the money will be spent and when, thus avoiding the risk of your life’s savings being spent frivolously. A testamentary trust may also be cheaper to set up because it is created as part of your will and only exists on paper and does not require any management or administration until the will is probated and the trust created. This type of trust can also protect beneficiaries from losing your estate assets to creditors because creditors cannot collect money from the trust.

There may also be disadvantages in creating a testamentary trust. While it protects your beneficiaries from creditor claims, it does not protect you or your estate as the grantor, since creditors can demand that debts be repaid before assets are placed into the testamentary trust. There may also be fewer tax advantages as a testamentary trust does not help avoid estate taxes or income taxes. Finally, while most trusts do not require probate before distributing assets, a testamentary trust must go through probate before even being created. If you have questions about setting up your will or a testamentary trust, call Oren Ross & Associates at (404) 436-1752.

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