Trusts are created to hold assets, and money in a trust is managed according to the instructions of the person who created it. A testamentary trust is a trust that’s created by a will after death, explains WTOP’s article entitled “What Is a Testamentary Trust and How Do I Create One?” Once the trust has been created, assets are placed into it and then distributed, as designated by its legal documentation.
There is also something called a revocable trust, which is a living trust created prior to a person’s death. A revocable trust is created outside of probate, which means that the heirs do not have to go through probate to receive assets from a living trust. Instead, a trustee can distribute funds directly to beneficiaries. Both testamentary trusts and living trusts are used for estate planning. However, a living trust allows for more flexibility and can have lower long-term costs. Living trusts are not only created outside probate but managed outside the court system as well. In contrast, testamentary trusts are administered through probate for as long as they are in effect.
A testamentary trust is frequently used to manage money for minor children, but it can protect assets in other situations too. The good thing is that there is a lot more court oversight. The bad part is court oversight is not cheap.
For example, a testamentary trust could be used to manage money for an 8-year-old beneficiary until age 25. But that means 17 years of probate. So, while testamentary trusts may be less expensive than living trusts to set up, they could cost more in the long run. These trusts are rare, and the one time a testamentary trust may have an advantage over a living trust is if someone involved in the estate is prone to taking legal action, in which case court management may be the better option.
You should ask an attorney to draft the documents. It should be an attorney who specializes in trusts and estates. Having an attorney draw up will and trust documents will make certain that they meet the state’s requirements and are written so that your assets are distributed according to your instructions.
When the creator of the trust dies, the testamentary trust will be created, and assets moved into it as stipulated in the deceased’s will. Distributions will then occur from the trust, as instructed in the trust documents.
Reference: WTOP (July 19, 2021) “What Is a Testamentary Trust and How Do I Create One?”
Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Asset Protection, Testamentary Trusts, Trustee, Revocable Living Trust, Irrevocable Trust, Probate Attorney