The Testamentary Trust: What You Need to Know | The KC EP
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The Testamentary Trust: What You Need to Know

When you begin setting up your estate plan, it’s often beneficial for you to also set up a trust. The problem is, which trust to use – a testamentary trust or a living trust?

The living trust is designed to manage your assets while you are alive and then transfer your assets after you pass away. However, the testamentary trust doesn’t go into effect until after you pass away.

The Basics of a Testamentary Trust 

The testamentary trust is established in your last will and testament. The will includes a provision that provides directions for the estate’s executor to set up the trust once you pass away.  The will also includes all of the provisions that are to drafted into the trust. While the will is going to be created while you are still alive, only when you die will the trust be established.

The will also has to be authenticated through the probate process before the executor is able to transfer your assets into this trust. In most cases, the testamentary trust is used if you want to leave assets to your beneficiaries, but not until a set date or time.

Creation and Distribution of the Trust 

After the testamentary trust is established, the appointed trustee is going to manage the assets until the trust assets are passed to the designated beneficiary. In most cases, there’s a timeline, including when the beneficiary reaches a specific age.

While living trusts are revocable once created (while you are still alive), the testamentary trust is irrevocable, because its created after you pass away.

Why Establish a Testamentary Trust?

There are several reasons for you to consider establishing this type of trust. These include:

  • Flexibility: With a testamentary trust, you can control your asset distribution to beneficiaries or relinquish the control to the trust.
  • Protection against any third party: The trustee is the one that holds the title to all the assets, not the beneficiary. This means the trust is completely protected from predators, creditors, court proceedings, bankruptcies, and the beneficiary’s own bad judgement.
  • Tax planning: You can specify which assets go to which beneficiary in order to create a smaller tax liability for beneficiaries in lower tax brackets.

Even though the use of a testamentary is a good idea for estate planning, and it can be beneficial if you have any children under the age of 18, you still have to go through the probate process.

Learn the Best Way to Protect Your Assets

If you want to ensure your assets are protected and that your beneficiaries are taken care of after you pass away, then you should talk to an experienced estate planning attorney like The KC Estate Planner, LLC, to determine if a testamentary trust is right for you.