Testamentary Trusts

A testamentary trust is similar to a living trust. It is essentially a box for holding assets.

There are two main differences between a testamentary trust and living trust.

First, a testamentary trust is not created while the person creating the estate plan is living but after that person has passed. The last will & testament has instructions to create the trust and is funded after debts are repaid to creditors.

Testamentary trusts and wills do not help assets avoid probate.

Second, because assets are transferred into the testament trust after the testator passes (the testator is the person creating the will), the assets are subject to probate. Hence, unlike living trusts, testamentary trusts do not help assets avoid probate.

If probate is not a concern, then a testamentary trust may be sufficient to handle a variety of estate planning goals, such as:

• Controlling distributions to young beneficiaries
• Controlling distributions to special needs beneficiaries
• Maintaining a residence for dependent children, their guardians or the spouse of a blended family
• Supporting a spouse of a blended family before ultimately distributing assets to the deceased's beneficiaries
• Maximizing estate tax exemptions for married couples

A testamentary trust is managed by a trustee or multiple trustees. The assets are managed in the best interests of the beneficiaries. Once again, the setup of a testamentary trust is similar to that of a revocable living trust.

Consult an attorney to determine if a will alone, a testamentary trust, a living trust or some other type of estate planning tool best suits your estate planning goals.