If you are like most people, you may not be familiar with the different types of trusts available in estate planning. The basic difference between testamentary and living trusts is when they become effective. A testamentary trust is a special type of trust that does not become effective until after your death. On the other hand, a living trust goes into effect when you create it and remains in effect during your lifetime. If you need help deciding which type of trust will best suit your estate planning needs, our Kansas City trust attorneys can help you decide.
How a Trust Basically Works
Establishing a trust agreement gives you a means for transferring your property to the name of the trust so that it can ultimately be transferred to your named beneficiaries after your death. The trustee is the person who manages the property until it is distributed to your beneficiary. One benefit of having a trust is that the property included in the trust does not have to be distributed through the probate process.
What Makes a Testamentary Trust Valuable?
A testamentary trust is a specific type of trust that is included in your last will and testament and provides for the distribution of all or part of your estate. A testamentary trust will usually include the proceeds from a life insurance policy that was held by the trustor. You can have more than one testamentary trust included in the terms of your will.
The Difference Between a Testamentary Trust and a Living Trust
A non-testamentary trust, also referred to as a living trust, becomes effective when the trust is signed and notarized, and the property is funded or transferred to the trust. These types of trusts are referred to as “living” trusts or “inter vivos” trusts because they essentially go into effect immediately, while the trustor is still living. A living trust can also be created as either revocable or irrevocable, depending on the goals of the trust.
On the other hand, a testamentary trust will not become effective until the death of the trustor and, at that point, it becomes irrevocable. Being irrevocable means, it cannot be modified or canceled. However, since the trust does not take effect until after death, the trustor is able to modify the terms of the trust at any point during his lifetime. Our living trust attorney can advise you about your choices.
Establishing a Testamentary Trust for Your Heirs
For many clients, testamentary trusts are the best choice because of their benefits for young children, relatives with disabilities, or others who may inherit a large sum of money. One reason is that minors cannot receive substantial gifts directly, as those assets need to be managed by an adult. Similarly, someone with a disability may need assistance in managing the trust property, depending on the type of disability. Including a testamentary trust in a will, however, allows you to leave a gift to these individuals while identifying your selected guardian as trustee of that property. The trustee will manage the trust until the minor reaches an age when they can manage the property themselves.
When Does a Testamentary Trust Become Effective and for How Long?
A testamentary trust essentially becomes effective upon the completion of probate administration, upon the death of the trustor of the trust. This type of trust lasts until it is set to expire, which generally depends on the specific terms of the trust agreement. For trusts that have been established for minors, the expiration of the trust typically occurs when the minor has reached the age of majority or older, when he or she graduates from school or gets married. Our living trust attorney can help you establish this type of trust.
The Role of the Probate Court in Administering a Testamentary Trust
Just as with most trusts, the probate court supervises the administration of the trust from the time the trustor dies, and the trust goes into effect until the point when the testamentary trust is set to expire. It is the court’s job to ensure that the trust property is being handled properly. Court supervision also means that, depending on how long the trust remains in effect, the legal fees can become quite substantial. This is a factor that needs to be considered when determining whether to include a testamentary trust in your estate plan.
Choosing the Proper Individual to be the Trustee of Your Testamentary Trust
As the person creating a testamentary trust, you can choose anyone to serve as trustee, however, it should be someone you are confident will act in the best interests of your children or other beneficiaries. It is also very wise to name an alternate or successor trustee in the event the person you have chosen declines or cannot serve in that role for any reason. If not, the court will be required to appoint a trustee.
How Do I Know Whether a Testamentary Trust is the Right Choice?
In some cases, a testamentary trust may be the best option if your estate is small. Another benefit is that the potential cost of establishing a testamentary trust is usually inexpensive and can be included in the preparation of your will and other estate planning tools.
Download our free estate planning worksheet today! If you have questions regarding living trusts, testamentary trusts or any other estate planning matters, please contact the experienced attorneys at Gaughan & Connealy for a consultation. You can contact us either online or by calling us at (913) 262-2000. We are here to help!