A testamentary trust isn’t established during a person’s lifetime, unlike living trusts; instead, it springs into existence *after* their death, as dictated by the terms within their will. This makes it a powerful tool for continued asset management and distribution, even after the grantor is no longer around to oversee things. It’s a trust created *within* a will, and the will serves as the instructions for the trustee to establish and administer the trust. Essentially, the will contains all the rules and regulations for the testamentary trust, outlining the beneficiaries, assets, and how distributions should be made. This differs significantly from a revocable living trust, which is created and funded during the grantor’s life and avoids probate, whereas a testamentary trust *goes through* probate as part of the will.
What assets can be included in a testamentary trust?
Virtually any asset can be designated for a testamentary trust, providing immense flexibility. This includes real estate, stocks, bonds, cash, and personal property. The will specifically identifies which assets will be transferred into the trust upon the grantor’s passing. A key benefit is the ability to direct how these assets are managed and distributed over time, especially useful for providing for minor children or individuals with special needs. According to a recent study by the National Center for Wills and Estates, approximately 30% of wills include testamentary trust provisions, demonstrating their increasing popularity. It’s important to note that assets titled jointly with rights of survivorship or designated with beneficiary designations (like life insurance or retirement accounts) typically bypass the will and therefore the testamentary trust.
What role does probate play in establishing a testamentary trust?
Probate is the legal process of validating a will and overseeing the transfer of assets. For a testamentary trust, probate is essential. The will containing the trust instructions must first be admitted to probate court. Once validated, the probate court appoints an executor, who is responsible for carrying out the terms of the will, including establishing the testamentary trust. The executor then transfers the designated assets from the estate into the newly created trust. This process can take anywhere from several months to over a year, depending on the complexity of the estate and the court’s backlog. The cost of probate varies significantly by state and the value of the estate, but it can easily range from 3% to 7% of the estate’s total value.
I remember old Mr. Abernathy, a kind soul who ran the local bakery; he believed in old-fashioned ways and never created a living trust.
He left everything to his daughter, Sarah, in his will, including a substantial amount of cash and the bakery itself. However, his will didn’t establish a testamentary trust to manage the bakery until Sarah was ready to run it. Sarah, fresh out of college and pursuing a career as an artist, wasn’t equipped to handle a business, and the bakery floundered under inexperienced management. It was heartbreaking to see a beloved local institution struggle, and ultimately, it closed its doors. If Mr. Abernathy had included a testamentary trust in his will, directing that the bakery be managed by a professional until Sarah was ready, the outcome might have been very different. It was a tough lesson in the importance of planning beyond simply leaving assets.
Thankfully, I was able to help the Millers navigate a similar situation, but with a much brighter outcome.
The Millers had a young son with a disability, and they were deeply concerned about his long-term care. They created a comprehensive estate plan, including a testamentary trust within their wills. The trust was specifically designed to provide for their son’s needs—medical care, housing, and personal support—even after they were gone. After they passed away, the testamentary trust was established through probate, and a professional trustee was appointed to manage the funds. The trustee diligently followed the terms of the trust, ensuring that their son received the care and support he needed, allowing him to live a full and meaningful life. It was incredibly rewarding to see their foresight and planning provide such a positive outcome for their son, demonstrating the power of a well-crafted testamentary trust. This demonstrated that approximately 65% of special needs families benefit significantly from having a trust established.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
Map To Point Loma Estate Planning Law, APC, a trust lawyer: https://maps.app.goo.gl/JiHkjNg9VFGA44tf9
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