Do you want to legally protect your family when you are gone, but are afraid that it will be a difficult and complicated effort? It’s easy to create a Testamentary Trust, a very effective and available estate planning tool to protect your loved ones and their future.
When you read the word “Trust” you might think it’s only for rich folks, or too complicated for ordinary families. Not true! A testamentary trust is a trust that’s included in your Last Will and Testament, that only comes into effect later, when your Will comes into effect – that is, when you die – and only if it’s needed at that time.
The word trust describes a broad range of uses and applications, but generally, you use a trust to put someone in charge of money or property for the benefit of someone else. You might utilize a trust, for example, to:
- Protect an inheritance for minor children and young adult beneficiaries
- Pay for education
- Establish a Special needs trust for a beneficiary with a disability or special needs
- Save taxes
- Supply charitable benefits or give to charity
In comparison to a Testamentary Trust, you instead might start a trust that comes into existence now, during your lifetime, a so-called “Inter Vivos” trust (meaning “while alive”). A common example is a Revocable Lifetime Trust or so-called Living Trust. In addition to the kinds of functions and purposes listed above, an additional benefit is that a lifetime trust usually helps to avoid probate upon your passing. Completely implementing a lifetime trust now is generally more work.
A Testamentary Trust that comes into effect later under a valid Will is simpler and easier to create now, and involves less work now. The comparative disadvantage is that assets passing under your Will to go into your testamentary trust do go through the probate process later. Probate is not a horror or a nightmare (despite what you may hear or read). It’s most often just a clerical, legal paperwork process, though it does take resources – time, energy and money – along the way.
Here’s some Trust Terminology: you would be the trust Creator, Settlor or Grantor. The Trustee is whoever you appoint to be in charge – someone you have confidence in, someone you … trust. The beneficiary is whoever the trust is established for, who will benefit from the trust.
A trust arising under your Last Will and Testament comes into effect only if it’s needed. For example, suppose someone with young children writes a Will that leaves their estate in trust for the benefit of the children when the parents are both gone. However, if years have gone by and the kids are grown adults, then the trust is no longer needed and the children may ordinarily inherit directly, outright and free of trust instead.
BUT if the kids are still young when both parents are gone, it’s crucially important to create trust arrangements to protect the kids’ inheritance, so that someone who you choose and select and trust is in charge of their inheritance for them for some period of time, to help and assist them while they age and mature, till they can handle it themselves.
Who should you choose as trustee? Most of my clients tend to appoint a trusted individual family member to serve as Trustee, such as a brother or sister, a parent or a trusted friend, etc. I do often like to see Co-Trustees appointed, both to share the work and the emotional burden, and mostly just because It can be true that two heads are better than one. I don’t usually like to have an older child appointed as Trustee for a younger child because it may lead to resentment and anger by the younger child against the older sibling, that can poison the relationship.
When there are no close, dependable individuals to rely on (or to stand by as backup or successor Trustee), I often help my clients to find skilled, knowledgeable, caring professional trustees or trust companies to serve. (Yes, their services cost something, but if you’re not there yourself, it’s a needed service, and you get what you pay for in life.)
Also, note that for a testamentary trust under your Will, you yourself can’t serve as the Trustee, because when your Will comes into effect you will have passed away! (and that’s why you need a trustee in the first place, to make decisions that you would make yourself if you were still present).
To create a valid trust, all you need (and I’m paraphrasing generally from official Pennsylvania law here) is a written trust statement or agreement, made with the mental capacity to make a sound decision and with the intent to create a trust, signed by the trust creator or on their behalf, with identifiable beneficiaries, assigning duties to the Trustee, and with assets in the trust.
It’s important to specify the purpose of the trust and other details of what you intend – the who, what, where, when, why, how much, how often, etc. – but also not to try to control future events too specifically in advance. Let your trustee do the job under the circumstances in the future.