There are multiple types of trusts that individuals may consider as part of a comprehensive estate plan, and the variations among them mean you have great flexibility in creating an arrangement that suits your needs. One option is a testamentary trust, defined by the American Bar Association (ABA) as a structure that is established in a last will and testament instead of via a separate trust agreement. As such, a testamentary trust takes effect after the will has gone through the probate process and assets have been distributed to beneficiaries. The trust itself is a beneficiary, being funded by whatever items were transferred into it via the will.
As with any component of your estate plan, the type of trust you choose should aim to achieve your objectives. A testamentary trust might be the right fit, but there are some limitations to note. You can rely on a trust and estate planning attorney to consult with you and advise you on options, and there are a few facts to know about testamentary trusts.
Creating the Testamentary Trust: You establish the trust by including the proper provisions in your will, which are similar to creating a separate trust. You are the grantor who transfers assets to the trust through the will, and you will name a trustee to manage the trust assets for designated beneficiaries. The trust provisions provide directions for the trustee in terms of making distributions.
Funding Comes After Probate: The testamentary trust is one aspect of the will as a whole, so it works in conjunction with other provisions. The estate may owe money to creditors, so these amounts must be paid before funding the trust. If the trust is to receive specific property, such as real estate, there is a possibility the asset must be sold to pay debts.
Control Over Distributions: With a testamentary trust, you can include provisions that restrict distributions to beneficiaries or make them conditional. This may be a strategy when your beneficiaries are young or not as sophisticated with financial matters.
Use for Special Needs Trusts: If you have a loved one who receives public assistance due to a disability, you can protect these benefits by creating your testamentary trust as a special needs trust. Because assets are held by the trust and not the individual, he or she remains eligible for Supplementary Security Income (SSI), Medicaid, and other programs. You would include provisions instructing the trustee to pay for things like:
- Entertainment and recreation;
- Vacations and travel;
- Medical and dental care not provided by other programs;
- Electronics, games, and televisions; and,
- Other items that supplement the public assistance benefits the person already receives.
Speak to a Trusts and Estate Planning Lawyer About Your Needs
It is important to be aware of these and other facts about testamentary trusts, but legal representation is critical when preparing your estate plan. For additional details, please contact Francois Williams Legal LLC. We can set up a consultation to learn more about your circumstances and review your options.