When planning for the future, most people are familiar with the concept of a will. A will lets you state who should receive your assets after you pass away. However, a will alone might not be enough when your loved ones have specific needs—whether due to age, financial instability, or reliance on government benefits. That’s where a testamentary trust can be a powerful tool.
Understanding the Basics of a Testamentary Trust
A testamentary trust is a type of trust that is created through your last will and testament. Unlike a living trust, which is established and managed during your lifetime, a testamentary trust does not come into existence until after your death. It only becomes active once your will has gone through the probate process and the court has officially recognized the trust and appointed a trustee.
Here’s how it works: When you pass away, your executor will present your will to the probate court. If your will includes language establishing a trust, the court will issue what are known as letters of trusteeship—essentially, formal documentation giving the trustee legal authority to manage the trust according to your wishes.
A Real-World Example
To illustrate how a testamentary trust works, imagine this scenario: You create a will stating that, upon your passing, all of your assets should go to your spouse if they are still living. However, if your spouse has already passed away, your will specifies that your assets should instead go into a testamentary trust for the benefit of your children.
You might further state in your will that the trust should only be established if any of your children are under the age of 35. Until a child reaches that age, the assets would remain in trust, managed by a trustee you appointed in your will. Once the child turns 35, the trust may dissolve and the remaining assets may be distributed directly to them—or it could continue longer, depending on how you structured it.
Why Consider a Testamentary Trust?
There are several compelling reasons to include a testamentary trust in your estate plan:
- Protection for Minor Children
Children under the age of 18 cannot legally inherit money or property directly. A testamentary trust allows you to name a trustee to manage those assets on their behalf until they reach a more appropriate age—whether that’s 18, 25, or even 35. You can also include specific instructions for how the funds should be used, such as for education, health care, or housing.
- Support for Beneficiaries with Special Needs
If one of your intended beneficiaries relies on government benefits such as Medicaid or Supplemental Security Income (SSI), inheriting money outright could disqualify them from receiving those benefits. A properly structured testamentary trust can preserve their eligibility by holding the assets in trust rather than giving them a direct inheritance.
- Financial Oversight
Some individuals simply aren’t great with money. Whether due to youth, inexperience, or past financial struggles, they may benefit from having their inheritance managed by a responsible third party. A testamentary trust gives you the power to safeguard their future by ensuring that funds are distributed in a controlled and thoughtful manner.
- Creditor Protection
If a beneficiary has outstanding debts or is at risk of being sued, assets left directly to them can be seized by creditors. Assets held in a testamentary trust, however, are generally shielded from creditors as long as the funds remain in the trust.
Setting Up a Testamentary Trust
Creating a testamentary trust starts with working with an experienced estate planning attorney. Your will must contain specific language detailing when the trust should be established, who the beneficiaries are, who will serve as trustee, and how the trust assets should be managed and distributed. It’s important that these provisions are clear, legally sound, and tailored to your unique situation.
Keep in mind that since a testamentary trust is subject to probate, it does not avoid the court process. However, for many families, the added structure and protection it provides are well worth the extra step.
We’re Here to Help
If you’re considering including a testamentary trust in your estate plan—or if you’re not sure whether it’s right for you—contact Miller & Miller Law Group today. We offer comprehensive consultations to help you understand your options and create a plan that brings peace of mind and long-term security for your loved ones.
Contact us today to get started. Be sure to mention this article during your consultation so we can focus on your specific concerns and guide you with personalized advice.
This article is a service of Miller & Miller Law Group. We do not just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love.
