Trusts can be an effective way to streamline your estate plan. It is important to understand the purpose of different types of trusts to determine which will best meet your needs and goals. Testamentary trusts offer certain benefits, but like anything else, they have drawbacks as well. Experienced wills and trusts lawyers can take a comprehensive look at your assets and circumstances and determine if a testamentary trust may be right for your estate plan.
What is a Testamentary Trust?
A trust is a legal entity that enables a trustee to manage the assets on behalf of the trust’s beneficiary. Typically, living trusts are separate from a will, funded while you are still alive, and then distributed according to your wishes after you pass away. A testamentary trust is created after your death, but you can outline the terms of the trust and name a beneficiary and trustee in your will.
Pros of Testamentary Trusts
Although testamentary trusts can provide some tax benefits, it may vary, depending on your specific situation and the state in which you live. It is vital to speak with estate planning lawyers to see if a testamentary trust may offer tax advantages for your beneficiaries.
Your will can include several testamentary trusts to benefit your children, spouse, or other loved ones. You can include specific instructions about how the funds may be spent and whether beneficiaries can sell or give away their interest in the trust.
Designating someone you trust to manage assets for a minor child or a loved one with disabilities can ensure their inheritance is protected and properly managed. A testamentary trust can also be useful if you have a beneficiary who struggles with addiction or mental health issues.
In addition, you can specify when you want the trust to end or allow the beneficiary to take control of it at a certain age. However, you may set it up to last for the beneficiary’s lifetime and can designate who will receive the assets in the trust if the beneficiary passes away.
Cons of Testamentary Trusts
The major disadvantage of testamentary trusts is that they do not avoid probate. Probate is the legal process in which a will is validated and assets of an estate are distributed. This means that when probate is necessary, funding a testamentary trust can take months. Probate is a public process, so all assets and beneficiaries are part of the public record. Setting up a living trust separate from your will offers a layer of privacy that a testamentary trust cannot provide.
Another potential pitfall is that if your will is contested or there is any confusion about the terms of your will or the trust, it may not be created and executed according to your wishes. Seeking the assistance of probate and estate lawyers can help to ensure you choose the appropriate type of trust for the distribution of your assets.
Regardless of the size or scope of your estate, our experienced business lawyers, residential real estate lawyers, and attorneys who do wills, work collaboratively to help you create an estate plan that protects everyone’s interests.