Do I Need a Testamentary Trust?

Do I Need a Testamentary Trust?

If you are wondering about a testamentary trust, talk to our experienced estate planning lawyers for answers.

Creating a trust as part of your estate plan can be a smart strategy for leaving assets to minor beneficiaries or controlling assets to adult beneficiaries after your death. Here is an overview of the basics of a testamentary trust and when forming a testamentary trust is recommended—to learn more, reach out to our Texas estate planning lawyers at the office of Cordoba Law Firm, PLLC directly.

What is a Testamentary Trust?

First, let’s define a trust—a trust is a fiduciary arrangement that exists between three parties — the grantor (the party who is creating the trust and placing assets in the trust), the trustee (the person who is responsible for managing the trust and distributing assets), and the beneficiaries (the person or people to whom assets are allocated).

A testamentary trust is one type of trust. In a testamentary trust, the trust is formed in accordance with the terms of the grantor’s last will and testament. As such, here are some things to know about a testamentary trust:

  • The trust will not be set up until after the decedent passes away; at that time, the assets that will be placed in the trust are some or all of those that are listed in the decedent’s last will and testament.
  • For parents or guardians with children who are not yet the age of majority, a testamentary trust can be used to hold assets on the behalf of minors until minors reach age 18 or a later date, at which time the assets will be distributed per the terms of the trust. Other ages and terms can be specified.
  • Like many other trust types, one of the benefits of a testamentary trust is that it can be used to reduce estate tax liabilities.
  • One unique thing to note about a testamentary trust is that assets held in this trust do not avoid the probate process. This is uncommon, as assets held in most other types of trusts do avoid probate.

Who Needs a Testamentary Trust?

While testamentary trusts have many benefits, they are not for everyone; for some individuals, other types of trusts may be more appropriate. With that in mind, a testamentary trust can be beneficial for parents with young children who do not wish to pass assets onto children until they reach a certain age or other requirements are fulfilled. Additionally, parents can have the trust last until the child is an age beyond 18. We find many clients prefer their children’s inheritance remain in trust until the child is 25 or 30 or 35. 

Other parties who may consider forming a testamentary trust as opposed to another type of trust, such as a living trust, are those who do not have the financial means to pay for the costs of forming a trust right now. This is because a testamentary trust is not formed until after the grantor is deceased, which means that costs will be paid by the estate after the grantor’s death.

Talk to Our Law Firm About Forming a Testamentary Trust

If you want to learn more about forming a testamentary trust or exploring other trust types, our lawyers at the office of the Cordoba Law Firm, PLLC can help. Call us directly today or send us a message online to get started.