A testamentary trust is a powerful estate planning tool that allows people to protect and distribute their assets in a strategic and tax-efficient manner after they pass. Let’s take some time and explore the key aspects of testamentary trusts, their benefits, and how they can be instrumental in your estate plan. Please contact a skilled estate planning attorney now to make sure your wishes and loved ones are protected.
What is a Testamentary Trust?
A testamentary trust is a trust established through a person’s will, activated only upon that person passing. Unlike a living trust, which takes effect during the grantor’s lifetime, a testamentary trust only becomes operational when the testator passes away. This legal arrangement enables the seamless transfer and management of assets for the benefit of designated beneficiaries.
The following terms are helpful when becoming familiar with a testamentary trust:
- Testator/Grantor: The individual creating the trust through their will.
- Trustee: The person or institution appointed to manage the trust and distribute assets according to the testator’s instructions.
- Beneficiaries: Individuals or entities designated to receive benefits from the trust.
Note that there are a few different types of testamentary trusts. These include:
- Discretionary trusts: Provide flexibility to the trustee in distributing assets based on the needs and circumstances of the beneficiaries.
- Charitable trusts: Allocate a portion of the trust’s assets to charitable causes.
- Special needs trusts: Designed to provide for individuals with disabilities without jeopardizing their eligibility for government assistance.
What are the Benefits of Testamentary Trusts?
A main benefit of a testamentary trust is that it can shield assets from creditors and legal claims. Testamentary trusts are also beneficial when it comes to taxes, as they may offer tax advantages for both the estate and beneficiaries. For example, the terms of the trust may work to limit both state and federal taxes for the testator.
There is also the issue of control over asset distributions. The testator maintains control over how and when assets are distributed, ensuring responsible management.
Please note that even though certain benefits are attributable to testamentary trusts, they are not without a few drawbacks. For example, they may involve legal fees and administrative expenses that will increase the overall cost of your estate plan. In addition, a testamentary trust may contain ambiguities in some of its terms, which can lead to disagreements and disputes among beneficiaries.
How to Create a Testamentary Trust
You should consult with a skilled estate planning attorney for the complete guide on how to successfully create a testamentary trust. The specific path for creation may vary depending on your assets and ultimate wishes for your beneficiaries.
With that said, the overly simplified description on how to create a testamentary trust is to do so with your will. You can include terms within your will that will create a trust and provide details on how it is to function. Your will can also appoint a trustee and inform as to who the trust’s beneficiaries are.
Contact The McWilliams Law Group for Help
The established California and Washington estate planning attorneys at the McWilliams Law Group help you prepare for the future today. We provide legal assistance with the following:
- Will drafting, execution and review
- Living trusts
- Advance healthcare directives (living wills)
- Powers of attorney
- Estate and gift tax issues
- Guardianships and conservatorships
- Choosing the appropriate executor and/or trustee
The skilled attorneys at our firm can help thoroughly analyze your estate and strategize the best means of transferring your assets, minimizing taxes, establishing guardianship, and supporting philanthropic causes. Contact us now and let us help protect your personal security, family, and legacy.
* Main image at top by Drazen Zigic on Freepik
