Have you heard about a testamentary trust? Hear me out as it may really fit the needs of your family. While some attorneys do not recommend them, I offer my clients the option to choose between testamentary trusts and revocable trusts based on their family needs. A testamentary trust may fit your family better so let’s not discount it.
As background, a testamentary trust is actually a Will-based trust. If the terms of the Will trigger the creation of the trust, the Will creates the Trust only after your death. As this trust is often the least burdensome way to proceed, it may fit your family better.
On the other hand, a revocable trust is created and used while you are alive (and continues after your death at least to some degree). The trustee (usually the trust owner) is the legal owner of the assets. At some point, the successor trustee (already named by the trust owner) steps in, if the owner dies or loses capacity. In this way, the trustee always manages the trust assets even when the trust owner cannot do it any longer.
Each trust has its own unique benefit and downfalls. This is why one-size-fits-all planning does not work. You must choose a trust that fits the particular needs of your family. Don’t get me wrong, testamentary trusts are not perfect. They must be probated as they arise from Wills (hence the name, “testamentary” trust). This subjects your estate to probate and its associated costs, delays and annoyances. A revocable trust avoids probate for the most part. A trust that travels through probate (like a testamentary trust) may seem pointless, as the reason most people get trusts is to avoid probate!
While it is true that the probate court oversees the testamentary trust, you may still find that the testamentary trust fits your family better. Three general types of family situations may benefit from the use of a testamentary trust:
1. Youngish Parents with Limited Assets
In my practice, I consult with many younger clients that do not have substantial assets. They often, however, have very young minor children. In those instances, my clients may have a need for long-term asset management but do not want to invest the time and costs associating with maintaining the trust. In that case, we start with a testamentary trust. We can update later if they see if necessary. I alert my clients to the downfalls, but they need to decide what is best for their family. In determining what direction to take, they will consider probate costs, extra work involved with trusts, their assets and ages of children.
2. Likely to Outlive Need for Trust, but want Peace of Mind
Young and healthy people with older children (late teens or young adults) may also favor testamentary trusts for peace of mind. While they have good kids that make smart decisions, the parents still prefer the children wait several years before acquiring an inheritance. In that instance, the Will includes provisions creating a testamentary trust and, accordingly, the trustee provides protection and guidance to the children.
3. Need Court Oversight due to Expected Problems
Testamentary trusts also fit those with concerns over future problems and/or conflicts within their own families. In some situations, people desire the court oversight inherent with a testamentary trust. Imagine a scenario where an older married couple each have children from prior marriages that not only do not get along, but they also overspend. In that situation, the long-term asset management offered by a trust is very attractive. But, conflicts may also arise between the trustee and the kids. In this situation, the parents may want court oversight over the trust.
In short, deciding what documents you need depends on your family situation. A testamentary trust may fit your family.
Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!
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