How to Set Up a Testamentary Trust

Did you know that almost half of American adults don’t currently have estate planning documents like a will or living trust? The truth is, while you should have a will, you might not need a living trust.

A living trust relinquishes your control over your assets before your death. In contrast, a testamentary trust doesn’t come into effect until after your death.

You can make changes to the testamentary trust until your passing when the trust becomes irrevocable.

Does this sound good to you? Keep reading to learn how to set up a testamentary trust fund.

How to Create a Testamentary Trust

A testamentary trust must be contained in the settlor’s final will. The last will and testament is the first legal document to take effect upon the passing of the settlor.

A settlor has to designate a trustee and beneficiaries of the trust to create a testamentary trust. The document for the trust should also state the assets that are involved. This could be any of the following:

  • Life insurance proceeds
  • Real estate
  • Bank accounts
  • All assets of the estate

In the probate process, the provisions of the trust get reviewed by the following parties:

  • Settlor
  • Trustee
  • Beneficiaries
  • Probate court

The will executor will transfer assets into a trust fund where the trustee manages the assets until the termination of the trust.

The probate court might require that the trustee report to them on a regular basis to see if the trust is being handled within the will and the law.

Types of Testamentary Trusts

As there are different types of trusts, there are different types of testamentary trust funds. A testamentary trust is not the same as a living trust. You can find more information here about the different wills and trusts.

The two types are testamentary trusts are:

  1. Separate testamentary trusts
  2. Family testamentary trusts

In the former, the settlor’s state is split evenly among the beneficiaries and put into separate trusts for each person.

In a family trust, all assets stay in one trust fund where the trustee distributes support based on the terms in the will.

Benefits of a Testamentary Trust

When you create a trust fund, you don’t always have control over your assets during your lifetime. However, a testamentary trust gives you control until your passing.

This is the main benefit of choosing a testamentary trust. Another reason people choose to make a trust of this kind is that it gives you more control over the timing of asset distribution.

For example, you can specify when a beneficiary receives money and how much they get. You can even specify that a beneficiary receives a certain amount in their younger years and increase that amount as they age.

The one downside to this trust fund is that the will must first go through the probate process. This can be time-consuming and cause a delay in beneficiaries receiving their assets.

Is a Testamentary Trust Right for You?

If you want to control your assets until your death, a testamentary trust is a better option than a living trust.

You can create either a separate or family testamentary trust and place the document in your will. Your will and testament will take effect upon your death but the testamentary trust won’t until the completion of the probate process.

To learn more about legal documents, what they mean, and how they work, check out other articles on our website.

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