With so many types of trusts out there, you might be wondering what sets a testamentary trust apart from the rest.
Below you'll find answers to commonly asked questions regarding the testamentary trust.
1. What is a testamentary trust?
A testamentary trust is a trust contained in a last will and testament. It provides for the distribution of all or part of an estate and often proceeds from a life insurance policy held on the person establishing the trust.
There may be more than one testamentary trust per will.
2. Who are testamentary trusts created for?
Generally, testamentary trusts are created for young children, relatives with disabilities, or others who may inherit a large sum of money that enters the estate upon the testator's death.
3. How is a testamentary trust created?
A testamentary trust is provided for in a last will by the “settlor,” who appoints a “trustee” to manage the funds in the trust until the “beneficiary,” or person receiving the money, takes over.
4. When is a testamentary trust created?
The trust kicks in at the completion of the probate process after the death of the person who has created it for the benefit of his or her children or others.
Note: This differs from “inter vivos” trusts, which are created during the lifetime of the settlor.
5. How long does a testamentary trust last?
A testamentary trust lasts until it expires, which is provided for in its terms. Typical expiration dates may be when the beneficiary turns 25 years old, graduates from university, or gets married.
6. What is the probate court's role in a testamentary trust?
From the time of the settlor's death until the expiration of the testamentary trust, the probate court checks up on the trust to make sure it is being handled properly. Depending on how long this time frame lasts, legal fees could add up, so this should be a consideration when deciding whether to opt for a testamentary trust.
7. Who can be the trustee of a testamentary trust?
The person creating the trust may choose anyone, but it should be someone the person trusts to act in the best interests of the children or others receiving the trust funds. If, for any reason, the person chosen declines to take on the responsibility of trustee, someone else may volunteer or the court will appoint a trustee.
8. Must the trustee honor the terms set out for expenditures in the will?
Not necessarily, which is why it's crucial that the settlor chooses someone trustworthy. However, if the trustee violates the terms of the trust, he or she could be liable for damages.
We can help cover the essentials, plus healthcare and financial documents that go beyond naming beneficiaries.
9. When does it make sense to opt for a testamentary trust?
If you create a Last Will and have minor children, it is common to hold their assets in a testamentary trust until they reach an age of your choosing. But everyone's circumstances are different, and you can talk to an attorney for legal advice.
10. How much does it cost to set up a testamentary trust?
It is generally inexpensive to include testamentary trust provisions during will preparation.
Testamentary trust FAQs
What is a testamentary trust and how does it work?
A testamentary trust is a special type of trust that only starts working after someone dies and their will goes through court. The trust then holds and manages money or property for the people you chose (called beneficiaries) until certain conditions are met, like reaching a specific age or graduating from college.
Who should consider setting up a testamentary trust?
People responsible for young children or for their family members with disabilities should consider this option. People who worry about their heirs spending inheritance money too quickly also find these trusts useful.
How long does a testamentary trust last?
A testamentary trust lasts until the specific event noted in it occurs. Most people set it up so the trust ends when beneficiaries reach a certain age or milestone such as graduating school or getting married. Some trusts are set up to last for the recipient’s entire lifetime, especially for people with disabilities who need ongoing support.
What role does the probate court play in testamentary trusts?
The probate court will review your will to make sure it's valid and then officially create the trust based on your instructions. The court also watches over the trust while it exists, checking that the trustee (the person managing the money) is doing their job properly. While this provides protection, it also means the process takes longer and costs more money than other types of trusts.
Who can serve as the trustee of a testamentary trust?
You can choose almost anyone to be the trustee of your testamentary trust. The person you pick should be someone you trust completely, like a family member or friend for smaller trusts, or else a professional trustee for larger amounts of money. You should also name a backup trustee in case your first choice can't or won't do the job when the time comes.
What are the main advantages of choosing a testamentary trust?
The biggest advantage of a testamentary trust is supervision over your assets, because the money must be used for the exact reasons your will specifies. The court supervision also provides an extra layer of protection against trustees who might misuse the money.
What are the disadvantages of testamentary trusts?
The main disadvantages are that testamentary trusts must go through probate court and will incur additional costs, because the trustee must check in with the court. Also, because probate records are public, anyone can see details about your trust and how much money is involved. The trustee also faces personal responsibility if they make mistakes, which can make it harder to find someone willing to take on the role.
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