When someone dies, there may be concerns about how their heirs will get on without them.
Individuals who have a minor heir may want to ensure that the assets that their beneficiaries have will be adequate to support that minor child. A testamentary trust provides testators with the ability to have their wishes carried out upon their death.
What is a testamentary trust?
A testator can set up a testamentary trust via their will. It goes into effect once they die. The will designates which assets go into the trust upon the testator’s death. Not all assets have to go into the trust, and testators are free to create more than one testamentary trust.
One of the first steps a testator must take to create a testamentary trust is determining which assets go into it. A testator must also name a beneficiary and a trustee, as well as detail the terms and conditions of the trust. The trustee manages the trust and distributes assets to beneficiaries.
How do testamentary and living trusts differ?
Testamentary trusts are different from living trusts in that the former goes into effect after its creator’s death. A living trust becomes effective while its creator is still alive.
Living trusts can be either revocable or irrevocable. The former term means that the trust grantor can modify it, whereas the latter term means the opposite. A testator can change their testamentary trust up until their death. A testamentary trust becomes irrevocable once a testator dies.
Many trust grantors opt for living trusts to avoid the probate process because they transfer their assets into the trust while they’re still alive.
The probate process isn’t avoidable by setting up a testamentary trust since the assets that are earmarked for transfer into the trust are under a testator’s control up until their death.
Which version of a trust is best for your circumstances?
Trusts can be very complicated to understand. There are many issues to consider, such as tax implications, management matters, how easily transfers are made and whether a probate process needs to occur. You must weigh all these options to come to your decision. Continue reading the resources on our website to learn whether a trust is right for you.