A testamentary trust is set up by a will. The key is that testamentary trusts are given their life after a probate of a will. The will then funds those trusts, which are then deemed testamentary trusts.
A testamentary trust is set-up by the testator (aka settlor, grantor, or trustor) through a will-based estate plan and could include:
- A Trust
- B Trust
- C Trust
- Future trusts for children or grandchildren
- Dynasty Trusts
A typical use for a testamentary trust, also referred to as a will trust, would be when young children or minors are the beneficiaries, to protect them until they are mature enough to responsibly handle their inheritance.
Testamentary Trust Trustee
The trustee of the trust, as designated in the will, is the legal owner of the trust, but has fiduciary responsibility for the distribution of the assets until the terms of the trust dictate otherwise. The trust may or may not contain specific instructions about how, when, and the conditions under which the funds are to be distributed.
The trustee is also responsible for prudently investing the trust assets, filing and paying the trust taxes, and annually reporting the status of the trust to the probate court.
Advantages and Disadvantages of a Testamentary Trust
Some advantages of a testamentary trust, in addition to protecting young beneficiaries, include the low upfront cost of preparing the will and the potential savings afforded by having the trust assets taxed as separate legal entity, at a lower rate and perhaps without any tax liability.
Some disadvantages of a testamentary trust are the time, costs, and associated legal liability required for a trustee to administer the trust, along with the the potential difficulty for beneficiaries to contest or remove a trustee based on their performance.
Take Steps To Plan Your Legacy
Evaluate your family’s odds of achieving a successful asset transition. Complete the 1O-question Estate Transition Checklist to determine how prepared you and your family are to achieve your asset transition goals.
Complete the Estate Transition Checklist
Our Personal Estate Planning Priorities Survey, in combination with the Estate Transition Checklist, will help determine your vision and goals for your estate plan and how it is administered by your heirs.
Complete the Survey: Estate Planning Priorities