Estate planning involves a multitude of legal instruments that help individuals prepare for and plan their legacies. Trusts are a major component of a comprehensive estate plan, and they fall into two categories: inter vivos trusts (which are created and exist during a grantor’s lifetime) and a testamentary trust (created as part of a will and coming into existence upon the grantor’s death).
You are likely more familiar with inter vivos trusts, so what do you need to know about testamentary trusts and why should you consider creating one? The experienced Brandon and Rankin County estate planning team at Palmer & Slay, PLLC has the answers you need.
The Basics of Testamentary Trusts
A last will and testament serves various functions such as designating which heirs will inherit which items of property, naming an executor (or personal representative) of the estate, and appointing a guardian for minor children. A less well-known use of the will is to create what is called a testamentary trust. Put simply, the language of the will creates the testamentary trust.
Because a will does not become operative until the testator’s death, the testamentary trust that is created in the will does not begin to exist until death, either. It does not exist during the testator’s lifetime, unlike inter vivos trusts. The part of the will that establishes the testamentary trust can be used to distribute a portion or the entirety of the testator’s estate.
The testator will need to select someone to administer this trust, as they would do with an inter vivos trust. This individual, known as a trustee, should be someone who is reliable. Alternatively, the testator can name a professional like a bank or attorney in Brandon or Rankin County to help make wise decisions concerning the management of the trust assets.
Why Have a Testamentary Trust?
Testamentary trusts are ideal for individuals with estates that are relatively small when compared to potential life insurance proceeds or other property that the estate will receive upon the testator’s death. There are other advantages to having one of these trusts, including:
- Long-term control over asset distribution: Heirs will almost immediately take possession of any items that are conveyed to them by way of a will, once the testator dies and probate is complete. Conversely, when property is placed into a testamentary trust, it is not all distributed at once. The assets are instead protected and distributed to beneficiaries (typically children) gradually, and at a time when the beneficiaries will responsibly use them.
- More time for assets to grow: Property that is distributed by way of a will may not appreciate in value very much between the time the will is created and the testator’s death. But when assets are placed into a trust, they can grow in value over time.
- Providing for beneficiaries in need: Testamentary trusts are often used to dispense with life insurance proceeds that the estate receives upon the death of the testator. This may be a great way to provide for a loved one who has a special need or a disability, ensuring their care long after the testator’s passing.
- Saving money: Including testamentary trust language in a will can also save money. The cost to create the trust comes out of the testator’s estate upon the death of the grantor. A testamentary trust is an affordable option for Brandon and Rankin County estate planners as they develop their unique estate plans.
Learn More About Effective Estate Planning Solutions
No two estate plans are alike, and the exact tools that you will need to secure your legacy and provide for your loved ones will vary based on your assets and objectives. Find out more about testamentary trusts and other solutions by reaching out to Palmer & Slay, PLLC. Schedule your initial consultation today.