What is a Testamentary Trust?
As distinguished from an inter vivos or living trust, a testamentary trust is effective upon the death of its settlor (the person who sets up the trust) and the will is handled through probate. Every state has its own statutory requirements which must be followed when probating or processing a will.
The most typical or common reason for using a testamentary trust is to conserve a decedent’s assets and to transfer wealth. A testamentary trust requires a trustee who administers the res or trust property which comprises a decedent’s estate. The trustee’s responsibilities include the orderly distribution of various property to beneficiaries named in the will, as set out in the trust.
There are substantial tax consequences when probating a testamentary trust. At the time of the decedent’s death, the assets of the trust are subject to estate and transfer taxes. It is the trustee’s responsibility to sort out these issues, generally by working with probate counsel.
The advantage of a testamentary trust is that the settler, the decedent, has a great deal of control over how the estate is distributed. This may well be a significant issue for the decedent, especially when it comes to setting aside the finances for a loved one’s education or maintenance.
Joseph Fedorowsky / Legal Blog
