A testamentary trust (“Test. Trust”) is a trust that is created upon the death of the person funding the trust. The terms of the trust are listed in the will of the testator (person who created the will before death). The will could be broken up into several Test.Trusts or just one and it could include all or only portions of the testator’s assets. It all depends on what is indicated in the will. The Test.Trust is treated as a separate legal entity so the assets in the trust would not be lumped in with the rest of the estate. The trust may still be subject to the estate tax if it exceeds the estate tax exclusion rate but it would be subject to the tax based on the assets in the trust and not the total assets of the estate.
There are many disadvantages of having a Test. Trust. One is that since the trust is created in the testator’s will, the trust is subject to the probate process. Normally one of the biggest reasons people create a trust in the first place is to avoid probate and have the beneficiaries inherit sooner rather than later. Additionally, since the probate courts are involved there are considerable attorney fees and costs spent on this process. These costs would most likely be taken from the trust assets which mean the beneficiaries would be inheriting less. Another disadvantage is that the testator has very little control over how the trust is handled. The person the testator nominates as trustee may not want the job. If that is the case, the court will appoint a trustee to oversee the trust. Also, if the trustee is not handling the trust as the testator wanted or if there is any dishonesty on the part of the trustee it can be very costly and time consuming for the beneficiaries to sue the trustee. There is also the fact that the beneficiaries may not succeed so they could have wasted their resources and not receive any benefits from this process.
You should consult with an estate planning attorney to see whether a Test. Trust may be right for you.
