Creating a trust as part of your estate plans may feel like the right way to pass property to loved ones or even an organization. Still, this method might give you pause if you worry about losing control over your assets. You could feel better if you could create the trust after you die.
Fortunately, through a testamentary trust, you may realize this estate planning option for your family and other beneficiaries.
What is a testamentary trust?
A testamentary trust is a type of trust that you establish through your will. Unlike other trusts that come into effect during the lifetime of the person creating the trust, a testamentary trust only becomes active after you have died and the executor begins to implement your will.
How does a testamentary trust work?
In a testamentary trust, you specify in your will what assets you want to go into the trust. You also name a person to be your trustee and explain how you want the trustee to manage and distribute the trust assets. After your death, the assets will transfer into the trust, and the trustee will take control of the trust.
What are some advantages?
A major positive of a testamentary trust is flexibility and control. You retain full authority over your assets during your lifetime. You may change your will as you wish to add or remove property and money from the trust until your death.
Additionally, testamentary trusts can protect the inheritance of beneficiaries. This is particularly true if your heirs are minors or individuals who may not be capable of managing their inheritance responsibly. A trust can condition how they receive assets from you.
Do any drawbacks exist?
Testamentary trusts can be more complex and expensive to set up compared to other types of trusts. Additionally, the assets in a testamentary trust may be subject to probate, which could lead to delays in the distribution of assets to beneficiaries.
While there are both pros and cons to consider, understanding the intricacies of testamentary trusts can help you make informed decisions about your estate plan.