10 Things You Should Know About a Testamentary Trust

Q: When Does it Make Sense to Opt for a Testamentary Trust?

Generally, if the person's estate is small in comparison to the potential life insurance proceeds or other amounts that will be paid to the estate at death, a testamentary trust may be advisable.

A testamentary trust can ensure children or others who need help managing the proceeds of your will are protected.

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by

Michelle Kaminsky, Esq.

Writer and editor Michelle earned a Juris Doctor degree from Temple University's Beasley School of Law in Philadelphia, Pennsylvania, which she attended on a Law Faculty Merit Scholarship. At Temple Law, she served as an editor on Law Review.Upon graduation from law school, Kaminsky served a two-year appellate clerkship with Justice Frank J. Montemuro Jr., of the Superior Court of Pennsylvania. During law school, she worked as a research assistant and writer for The Legal Intelligencer Suburban Edition. She is a member of the Pennsylvania Bar. You can find her at MichelleKaminsky.com.

1. What is a testamentary trust?

A testamentary trust is a trust contained in a last will and testament.

It provides for the distribution of all or part of an estate and often proceeds from a life insurance policy held on the person establishing the trust.

There may be more than one testamentary trust per will.

2. Who are testamentary trusts created for?

Generally, testamentary trusts are created for young children, relatives with disabilities, or others who may inherit a large sum of money that enters the estate upon the testator's death.

3. How is a testamentary trust created?

A testamentary trust is provided for in a last will by the “settlor,” who appoints a “trustee” to manage the funds in the trust until the “beneficiary,” or person receiving the money, takes over.

4. When is a testamentary trust created?

The trust kicks in at the completion of the probate process after the death of the person who has created it for the benefit of his or her children or others.

Note: This differs from “inter vivos” trusts, which are created during the lifetime of the settlor.

5. How long does a testamentary trust last?

A testamentary trust lasts until it expires, which is provided for in its terms. Typical expiration dates may be when the beneficiary turns 25 years old, graduates from university, or gets married.

6. What is the probate court's role in a testamentary trust?

From the time of the settlor's death until the expiration of the testamentary trust, the probate court checks up on the trust to make sure it is being handled properly. Depending on how long this time frame lasts, legal fees could add up, so this should be a consideration when deciding whether to opt for a testamentary trust.

7. Who can be the trustee of a testamentary trust?

The person creating the trust may choose anyone, but it should be someone the person trusts to act in the best interests of the children or others receiving the trust funds. If, for any reason, the person chosen declines to take on the responsibility of trustee, someone else may volunteer or the court will appoint a trustee.

8. Must the trustee honor the terms set out for expenditures in the will?

Not necessarily, which is why it's crucial that the settlor chooses someone trustworthy. However, if the trustee violates the terms of the trust, he or she could be liable for damages.

9. When does it make sense to opt for a testamentary trust?

If you create a Last Will and have minor children, it is common to hold their assets in a testamentary trust until they reach an age of your choosing. But, everyone's circumstances are different and you can talk to an attorney for legal advice.

10. How much does it cost to set up a testamentary trust?

It is generally inexpensive to include testamentary trust provisions during will preparation.