A testamentary trust can give people more control from the grave.
Those leaving inheritances can often feel torn.
They know the assets they leave to loved ones could provide support in times of need.
They also know their heirs may not be ready to make wise financial decisions when they inherit.
A significant fear is leaving wealth to someone and having it squandered.
Consider the ancient, relevant wisdom of King Solomon echoing down millennia to us in Ecclesiastes 2, especially verses 18 through 22.
According to a recent US News article titled “What Is a Testamentary Trust and How Do I Create One?,” people with these concerns have a means of leaving assets while protecting them from and for their heirs.
One option is to utilize a testamentary trust.
Trusts are entities used to hold assets.
Assets can be distributed to heirs according to specific instructions outlined in the trust provisions.
Unlike an inheritance trust created under a revocable living trust (RLT), a testamentary trust is created after a person has died through instructions provided in a last will and testament.
Once the last will and testament has been validated and probated, then the assets of the individual who died are directed to the testamentary trust.
With a RLT, assets are placed in the revocable trust before the person dies and then may continue in an irrevocable inheritance trust according to specific instructions outline in the trust provisions.
These assets in a RLT pass entirely outside of probate and directly to the irrevocable inheritance trust.
On the other hand, assets passing must pass through probate for the last will and testament to direct them to the testamentary trust when probate has concluded.
Both of these paths end up with the same result, just by different routes.
While both are common estate planning tools, a living trust is a completely separate entity and will be managed outside of the court while a testamentary trust is administered through the probate courts.
When are testamentary trusts commonly used?
These are common when a person has minor children or when adult children might be at risk of divorce or lawsuits.
In addition, the probate court will commonly monitor the activities of the trustee of a testamentary trust until any minor child reaches age 18.
This protects the child, the inheritance, and the trustee from any missteps.
Although you may be able to find templates for a trust online, these can fail to have the appropriate language for state and federal laws or fail to address your specific concerns.
Working with an experienced estate planning attorney to create either an inheritance trust under a RLT or a testamentary trust under a last will, may be the best way to ensure your wishes are followed regarding the distribution of your assets.
It may be too late for the estate of King Solomon, but there is no time like the present for you.
Reference: US News (June 14, 2022) “What Is a Testamentary Trust and How Do I Create One?”