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What is a Testamentary Trust?
Tricia Christensen
Tricia Christensen
A testamentary trust is a type of trust that is put into effect when the testator dies. This type of trust is often created for children who are minors or young adults so that money, such as life insurance funds, will be distributed to them when a parent dies. It typically is part of the testator's will. A testamentary trust involves appointing a trustee to look after the funds in the trust until a given point when the trust expires, such as when the child finishes college or turns 25 years old. The upfront cost of setting up a testamentary trust is usually very low.
Often-Expensive Option
Depending on the number of years for which the trustee must act for a testamentary trust, he or she will need to go to probate court and have the trust examined on a regular basis. For this reason, testamentary trusts can end up costing more in legal fees than revocable living wills would cost. If a trustee needs frequent legal advice on how to administer the trust, this can mean a significant amount of legal fees over time, which usually is deducted from the trust amount.
These costs are why many attorneys advise people to create revocable living wills rather than testamentary trusts. On the other hand, if both parents or a single parent has a very high life insurance disbursement and little in the way of ready money, a testamentary trust might be beneficial. It can be the only method by which some people are able to dictate some terms for providing for their children if they suddenly die.
Finding a Trustee
The creation of a testamentary trust also means that a person must act as a trustee until the trust ends. Such a person can be appointed in a will, but some will not take up the role, because it can be time-consuming. In the event that no trustee is appointed, one can be court-appointed, or an adult friend or relative of the testator might volunteer to act as the trustee. It is advisable for someone who wants to create a testamentary trust to talk with friends and family members about who will act as guardian and trustee in the event of his or her death.
Before the children have full disbursement of trust funds, the money is handled by the appointed trustee, and this work is overseen by probate courts. This should ensure that money matters are handled appropriately, but choosing a trustee who is trustworthy is recommended. After the trustee is given responsibility for the money, control of it and the degree to which it can be spent on the care of the child or children might not be sufficiently controlled by a very short or non-specific will. A will might clear a person's wishes regarding the use of the money, but the trustee — if the court agrees — does not necessarily have to honor these wishes.
Tricia Christensen
Tricia has a Literature degree from Sonoma State University and has been a frequent SmartCapitalMind contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.
Learn more...
Tricia Christensen
Tricia has a Literature degree from Sonoma State University and has been a frequent SmartCapitalMind contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.
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![A testamentary trust is created for children who are minors or young adults so that money, such as life insurance funds, will be distributed to them when a parent dies.]()
By: JackFA testamentary trust is created for children who are minors or young adults so that money, such as life insurance funds, will be distributed to them when a parent dies. -
![A testator is required to be of sound mind when he or she creates and signs a will.]()
By: JackFA testator is required to be of sound mind when he or she creates and signs a will.
Discussion Comments
Please clarify whether it is always necessary to involve a court in the event of a testamentary trust, particularly when the beneficiaries are all adults. For example, California allows small estates to skip probate sometimes. Does the inclusion of a testamentary trust always mean that a probate court must be involved? (I will be conferring with a lawyer eventually, but am trying to get an idea of the answers first.) Thanks.
does a durable power of attorney have power as a trustee of a testamentary trust. That is, if a trustee is not capable of meeting his duties as a trustee, can a DPA act on that trustee's behalf?
will all wills be probated? Our family has living trust but also a will. The will is simple, giving residual items to trustee of trust. will this type of will need to be probated. The trust has been properly funded.
my husband left money to our son in a testamentary trust because he has, in the past, had a drug problem. what are the pitfalls for him?
I am the testamentary trustee for a trust fund established by the grantor in New York State. I live in Michigan. To which state do I pay state income tax on the income from this trust?
When a testator has left his estate to a trust that is to be formed after his death, is it mandatory for him to name the trustee of the trust. What happens to his estate after his death if he has not named anyone as trustee?
I am trying to have a good basic understanding of a testamentary trust. If the trustee comes to a bank to open a bank account in the name of the trust, would the bank representative be reading the will for the titling of the account? Also, would it be opened up under an EIN as opposed to a SSN because the "grantor" is deceased?
It sounds like once the grantor dies, the will is probated and the appointed trustee (by the grantor, or the court) will carry out the distribution of the property in the will. The ownership of the property is transferred to the name of the trust?
Thanks.
A will that has testamentary trust provisions inside it should be about the same length and about the same cost as a living trust. It will *not* be effective during a person's incapacity; only after death. There is minimal tax planning, if any, available unless you work with a living trust. *Most importantly*, the testamentary trust will be taken to court and will result in court costs and attorney fees--which is a lot more money than a living trust. If the price of a living trust price is quoted significantly higher than the testamentary trust, then keep looking for a better quote and better expertise. There are a few advantages to the testamentary trust, but cost should not be one.
can a trustee charge fees if there is property management and hours of work with the testamentary trust? This is not your typical trust account it involves a lot of time consuming work. The upkeep of the properties, etc. We live in florida and this account involves ten years of handling.
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