What is a testamentary trust and why should you consider it?

A testamentary trust is one that you establish through your last will and testament. This means that your will’s executor must create and transfer assets into a trust. They will also name the trustee and beneficiaries according to the terms in your will.

There are many benefits to creating a trust. Many people create a trust specifically to avoid letting their assets pass through probate, which can be expensive and time-consuming. So, why would one establish a trust that still goes through that process?

It is easy to change

You can update your will, including the testamentary trust, as often as you like while you are alive. This makes it easy to adjust your plans if your situation changes.

It can have lower costs

Creating a testamentary trust may be cheaper than setting up a living trust. You don’t have to pay to keep it running during your lifetime, as it only comes into effect after you pass away.

It can give you more control over inheritance

You can decide exactly when and how your beneficiaries get their inheritance. For example, you might want your children to receive their money when they turn 25. This helps ensure they use the money wisely.

It may have some tax benefits

A testamentary trust can help reduce the amount of taxes your estate might have to pay, leaving more for your beneficiaries. However, take note that there are still probate costs and federal estate taxes to pay (if your estate exceeds a certain amount).

Make sure it’s right for your situation

A testamentary trust is a good option if you have young children, since it allows you to specify when and how they will receive their inheritance. If you have children with special needs, it can protect their eligibility for certain government benefits. While other types of trusts can provide similar benefits, testamentary trusts can be more straightforward and cost-effective to set up.

Of course, a testamentary trust has some drawbacks. Aside from going through the probate process, there may also be a risk of disputes among beneficiaries or misinterpretation of your wishes if the will has vague terms. To find out if it is the best option for you, consulting with an attorney may be necessary.