One of the primary benefits of a trust is that the assets you include in the trust will likely avoid the probate process. There are different types of trusts, so you should discuss your options with your estate planning attorney first. A testamentary trust is a type of trust that is included in a will and does not go into effect until the person who created it dies. Trust administration is an important process and understanding how a testamentary trust works will help you make a choice.
Understanding a testamentary trust
A testamentary trust is simply a trust that is contained in a last will and testament and provides for the distribution of an estate or a portion of an estate. It is possible to have more than one testamentary trust included in your will, depending on the types of property you are dealing with. A trust agreement provides a way for your property to be transferred to the name of the trust, so that it can ultimately be transferred to the named beneficiaries upon your death. As with other types of trusts, the trustee is the person who will manage the trust property when the trust goes into effect.
A testamentary trust and a living trust are different
Non-testamentary trusts, also referred to as living trusts, become effective when the trust is signed and notarized and the property is transferred or funded to the trust. These non-testamentary trusts are also referred to as “living” trusts or “inter vivos” trusts because they become effective immediately, while the grantor is still living. A living trust can be created as either revocable or irrevocable, depending on the purpose of the trust. Irrevocable trusts cannot be modified or revoked once they have been created. A testamentary trust can also be established within a living trust and, like one created by a will, will take effect upon the death of the trust creator.
A testamentary trust, on the other hand, does not become effective until the death of the person creating the trust. At that point, the testamentary trust becomes irrevocable. Yet, because the trust does not take effect until after death, the person who created the trust is free to modify its terms until his or her death. Understanding these differences is important for trust administration.
Using testamentary trusts for special beneficiaries
In many cases, testamentary trusts are created for young children, relatives with disabilities or special needs, or others who may inherit a large sum of money and need assistance managing that money. Minors, for example cannot receive inherit gifts directly, because of their lack of maturity. As such, those assets need to be managed by an adult. Including a testamentary trust in a will, however, allows you to leave a gift to a child, as well as identify your selected guardian as trustee of that property. The trustee will then manage the trust until the minor reaches an age when they can manage the property themselves.
When does a testamentary trust typically take effect?
A testamentary trust in a will basically becomes effective once probate administration has been concluded, after the death of the person creating the trust. This type of trust will remain in effect until it is set to expire, which is determined by the specific provisions of the trust agreement. If the testamentary trust was established for a minor, then expiration commonly occurs when the minor has reached the age of majority, when he or she graduates from school or gets married. This is an important part of trust administration.
The role of the probate court in administering a testamentary trust
As with most trusts, the probate court may provide supervision of the administration of the trust from the time the trust goes into effect until the point when the testamentary trust expires. In some cases, it is the court’s duty to ensure that the trust property is being handled properly. Court supervision also means that, depending on how long the trust remains in effect, the legal fees could be substantial. This is something that should be considered when deciding whether to include a testamentary trust in your will.
The importance of the trustee of a testamentary trust
The person creating a testamentary trust has the opportunity to select someone they trust to serve as trustee. It should be someone you believe will act in the best interests of your children or others beneficiaries. It is also a wise to name an alternate or successor trustee just in case the person you have initially chosen declines or cannot serve in that role for some reason. If you don’t, the court will be required to appoint a trustee for you. Trust administration depends on the skills and efforts of the trust administration.
How to know if a testamentary trust is a good choice
A testamentary trust may be a good choice for you if your estate is minimal in comparison to the life insurance proceeds you expect to be paid to the estate upon your death.
Download our FREE estate planning checklist today! If you have questions regarding testamentary trusts or any other estate planning matters, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!
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