If you’re considering setting up a trust as part of your estate plan, you may wonder which trust best fits your needs. While revocable trusts are often discussed as flexible options, testamentary trusts can be a strategic choice for individuals who want added protection and court oversight of their assets. This article will explore testamentary trusts in depth, highlighting when they might be the right choice for you, especially if you’re setting up wills and trusts in the Woodbury area.
What Is a Testamentary Trust?
A testamentary trust is a type of trust established upon an individual’s death through a last will and testament. Unlike revocable living trusts, which are created while you’re still alive and avoid the probate process, a testamentary trust becomes active only after probate court validates your will. Once validated, the designated assets are transferred into the trust, and the appointed trustee manages and distributes them according to your instructions.
Phil Ruce, estate planning director, explains the basics of a Testamentary Trust in his video:
How Is a Testamentary Trust Different from a Living Trust?
The main difference between a testamentary trust and a living trust is when they take effect and the degree of court involvement. A living trust is set up during a person’s lifetime and often provides flexibility, as it bypasses probate and can be adjusted as needed. Testamentary trusts, however, are created by the terms of a will and are subject to probate, which means a court oversees their administration. This added oversight can benefit those who seek extra protection for their heirs or a deterrent against litigious family members.
Why Would Someone Choose a Testamentary Trust?
The article “What Is a Testamentary Trust and How Do I Create One? from U.S. News & World Report outlines three main reasons why someone would create a testamentary trust.
Trusts Protect Minor Beneficiaries
One of the main uses for a testamentary trust is to manage assets for minors until they reach a designated age, such as 25 or 30. If a beneficiary is under this age at the time of inheritance, the trust can cover expenses like education and healthcare without transferring full control of the assets to the minor. Our articles, Why You Shouldn’t Name Minors as Pay on Death Beneficiaries and How Does Estate Planning Protect Young Children? explain how minor children should never be listed as a beneficiary because they cannot receive the inheritance until they are legal adults. Instead, using a safeguard like a trust that will secure the inheritance for them and provide access via a trustee’s management ensures that they will be supported no matter what happens.
Trusts Provide Protection from Family Circumstances
Testamentary trusts are ideal for families where some beneficiaries may need oversight or protection, such as children who might not yet be financially responsible or families with potential disputes. The court’s involvement can deter contentious family members from challenging the will, as the trust’s management and distributions are overseen by probate court.
Trusts Keep Assets in the Family During Divorce
If there are concerns about an adult child divorcing and losing part of the inheritance, a testamentary trust can add a layer of protection to keep assets within the family. Some parents use testamentary trusts to ensure their family’s wealth stays intact across generations. Read more about Why You Shouldn’t Leave Your Adult Children Their Inheritance Directly—Use a Trust Instead
What Are the Pros and Cons of a Testamentary Trust?
Pros:
- Added Oversight: Court supervision may be beneficial if you want added security for your assets.
- Control Over Distribution: You can specify the age or circumstances under which beneficiaries receive distributions, ideal for young children or those with special needs.
- Protection from Legal Challenges: The probate court’s involvement can deter certain types of legal disputes.
Cons:
- Probate Process: Unlike living trusts, testamentary trusts are part of probate, which may result in additional legal costs and time delays.
- Higher Long-Term Costs: Testamentary trusts might be less expensive to establish but can incur ongoing costs due to court involvement, especially if they’re intended to last for many years.
- Limited Flexibility: Once activated, a testamentary trust is irrevocable, meaning you cannot make changes to it posthumously.
Also Read: What Age Should My Kids Be When They Receive Their Inheritance?
How Can You Set Up a Testamentary Trust?
Establishing a testamentary trust involves specific legal language in your will, which is why working with an estate planning attorney is essential. They can guide you through the process, help you select the right trustee, and ensure your trust is legally sound and tailored to your needs.
If you’re in Woodbury or the surrounding areas, Stone Arch Law Office helps clients establish testamentary trusts that meet Minnesota’s legal requirements. Clients have praised Stone Arch Law for its knowledgeable and compassionate team, who explain complex estate planning issues clearly and guide families through each step. With experience in testamentary and living trusts, Stone Arch Law Office can help you determine the best approach for your estate planning goals.
Which Trust Is Best for You?
Choosing between a testamentary and living trust depends on your unique family dynamics, financial goals, and asset protection needs. Testamentary trusts are particularly useful if you’re looking for long-term protection and oversight, but they may not be the best choice if your primary goal is to avoid probate. In contrast, living trusts offer more flexibility, but they may lack the degree of court oversight provided by a testamentary trust.
Also Read: Add a Child to Your House … and Lose Your Home!
Speak with a Woodbury Wills and Trusts Attorney to Get Started
To get started with estate planning tailored to your family’s needs, book a call with the estate planning team at Stone Arch Law Office in Woodbury who is dedicated to making estate planning straightforward, so you can feel secure knowing your legacy is in good hands.
