Why you should avoid a testamentary trust

When it comes time to start the estate planning process, you may be exploring various trust options to provide for your loved ones after your death. One option is a testamentary trust. This document goes into effect after you die. It’s often used when a minor is included as a beneficiary.

What is a Testamentary Trust?

A testamentary trust is a part of a last will and testament. It explains the distribution of your assets. Some people choose to create a separate testamentary trust for each beneficiary. An attorney will review your situation and help you determine if this is necessary.

A common misconception about using a testamentary trust is that the process helps your beneficiaries avoid probate and its associated costs. However, the opposite is actually true. After you have passed on, unlike a revocable trust, your testamentary trust goes into probate. During this time, the court evaluates your last will and testament so that your wishes can be carried out. The trust is created during the probate process.

Testamentary Trust Problems

A testamentary trust has drawbacks. For starters, the trust won’t be created until after your death. This means you can’t transfer assets to fund the trust during your lifetime. It also limits the control you’ll have over how it’s carried out.

You’ll have to have faith in your appointed trustee to fulfill your wishes. Furthermore, your trustee can decline the position at any time. If that happens after you die, the court will appoint a new trustee who may or may not be faithful to your wishes.

Once your testamentary trust is established, the probate court will check in regularly to verify the execution. This results in additional fees, which can reduce the amount your beneficiaries ultimately receive. The probate fees can really add up, depending on the duration of your trust.

A Better Option

Are you worrying about whether or not your trustee will actually follow your wishes? Instead of creating a testamentary trust within your will, you may want to consider establishing a revocable trust for your loved ones while you’re still alive. Planning your estate in this manner will eliminate many of the problems associated with a testamentary trust.

A revocable trust allows you to:

• Establish the trust while you’re still alive. This way, you can specify any conditions and requirements from the start. You won’t have to rely on the probate court to handle this task for you.
• Work closely with your trustee from the beginning. This enables you to make sure they’re willing and able to execute the trust for you. The goal is to appoint someone who can fulfill the duties without needing a new trustee appointed later. Involving them from the start gives them an opportunity to fully understand and execute your wishes.

One of the greatest benefits of a revocable trust is that all of the assets in the trust remain yours as long as you’re alive. This includes any income the investments or savings accounts in your trust generates. You’re free to add or remove funds as you please if your situation or wishes change in the future. This gives you the greatest possible control over your assets until you reach the end of your life and the trust passes to your beneficiaries.

Learn More About Trusts

If you’re unsure whether a testamentary trust or revocable trust is better for your situation, get in touch with Ogborne Law. We’ll work with you to evaluate your unique situation and determine which estate planning options make the most sense for you. Call Ogborne Law today to learn more about trusts and start putting together your estate planning documents today.