Testamentary Trusts—A Will and A Trust

The last will and testament (commonly known as a will) has been a popular estate planning tool for many years. It allows you to leave accounts and property that are owned by you in your sole name, without a beneficiary designation, to whom you want in the way you want. However, some people believe you have to give your loved ones everything all at once if you use a will, but that is not always the case. Even if you use a will, you can also use a special type of trust known as a testamentary trust as part of your will, which allows you to provide specific instructions for how your loved one’s inheritance should be used and distributed (or delayed).

You Can Protect Your Loved Ones

Depending on your unique circumstances, your loved ones may need the extra protection that a testamentary trust can provide.

  • Surviving spouse. Some couples are hesitant to leave everything to their surviving spouse out of fear that the surviving spouse could be taken advantage of, remarry, or otherwise lose the money and property that was left to them. A testamentary trust can allow a surviving spouse to have access to the money and property with added protections to safeguard it.
  • Minor child. In most states, minor children cannot legally own anything. If money and property are left to a minor, the court may need to appoint someone to manage the inheritance to ensure that it is used appropriately. A testamentary trust allows you to select a person to manage the inheritance and leave specific instructions about how the money and property should be used and distributed.
  • Individual with special needs. If you have a loved one who is currently receiving or may need to avail themselves of certain government benefits due to a disability, a poorly structured inheritance can jeopardize their ability to qualify or keep the government benefits they need to survive. A properly structured testamentary trust can provide funds to your loved one to supplement what they are receiving from the government without disqualifying them from government assistance.

Your Loved Ones Will Still Have to Go Through Probate

Although a testamentary trust allows you to use a trust to manage and distribute money and property to your loved ones, the probate court will still have to be involved. As opposed to a revocable living trust that is created during your lifetime, a testamentary trust comes into existence at your death during the probate process. As part of wrapping up your affairs, the person you name as executor or personal representative will be in charge of changing the ownership of your accounts and property from your name as an individual to the trustee of the testamentary trust. Once the account and property ownership has been changed, the trustee will manage the trust according to the instructions in the last will and testament for the trust’s duration. When all of the accounts and property have been given to the intended beneficiaries, the trust will terminate. During the course of the administration, the trustee may be required to provide annual reports to the court and other important parties and may have to periodically appear before the judge.

Although the probate process can be time-consuming, expensive, and public, it may be the right option in some circumstances, depending on your situation. Some people find that having a third party (the probate court) oversee the process adds stability and harmony. This can help families who may otherwise argue over the details remain cordial and on their best behavior.

There are many options when it comes to crafting a plan that is right for you. We are committed to developing a plan that best protects you, your loved ones, and your legacy.

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