Testamentary Trusts

A testamentary trust is a trust contained in a will. Since it is in a will, it does not become effective until you die, at which time the trust is funded through probate. Both testamentary and revocable living trusts can provide for unified management and distribution of estate assets. Testamentary trusts can be used for the same types of sophisticated marital deduction and credit shelter planning available by the use of living trusts. Charitable lead and remainder trusts can also be established by will.

Testamentary trusts offer the following ADVANTAGES when compared to revocable living trusts:

  • Testamentary trusts avoid the cost of transferring assets to the trust during your lifetime.
  • Testamentary trusts avoid the paperwork and formalities during your lifetime of registering investments as trust assets, keeping separate accounting records, and filing fiduciary tax returns.
  • The four-month creditor’s claims cutoff may protect assets transferred to a testamentary trust through probate.

Testamentary trusts are DISADVANTAGEOUS for the following reasons.

  • A testamentary trust does not allow the estate plan to be tested during your life by creating and administering a living trust.
  • A testamentary trust requires probate rather than avoiding it. Thus, the trust assets will be subjected to higher administrative fees and costs. There will be delays in the management of assets intended to fund the trust.
  • Ancillary probate proceedings may be required in other states if any property is located in those states. The terms of the trust and other aspects of estate administration will be matters of public record.
  • Contesting a will is easier than contesting a revocable living trust.