A trust is a legal tool where one person (a grantor or settlor) gives assets (money or property) to another person or organization (trustee) to manage for the grantor/settlor. A trust can be for the benefit of the grantor/settlor or another. A testamentary trust is when the trust is part of a person’s will.

Why Include a Testamentary Trust?

When an asset is bequeathed in a will, the asset fully and immediately transfers to the beneficiary upon probate of the will. In other words, a will is a lump sum payment or transfer rather than an annuity of your estate. A trust, on the other hand, permits the asset to be released over time. Thus, a trust is the annuity payout option in the lottery of inheritance. The delayed nature of a trust’s payout allows the trust maker to continue the supervision of assets after their death.

Consequently, a testamentary trust is a particularly useful tool when the beneficiary is a minor child, a person with disabilities, or the asset is worth a considerable sum. A testamentary trust is also a good option where the grantor/settlor worries that the beneficiary may not be able to manage money for long-term availability. A testamentary trust can also be used to manage charitable distributions, such as annual donations to your church or alma mater.

How Does a Testamentary Trust Work?

Unlike other trusts which can manage and distribute assets during the grantor/settlor’s lifetime, a testamentary trust only comes into effect once the grantor/settlor has died, similar to a will. A single will can contain multiple testamentary trusts. This means that each minor child can have their own testamentary trust contained within the parent’s will. The parents’ will can also contain a testamentary trust to provide for a disabled parent or a special needs sibling, if required. Each testamentary trust is tailored to the needs the maker hopes to provide for.

A testamentary trust is also unique in that the will must first go through probate before the trust is able to go into effect. With other trusts, the trust is created, and the assets are transferred to the trustee. The trustee then begins managing the trust per the terms created by the grantor/settlor.

With the testamentary trust, the will is executed, containing the clause for the testamentary trust. The grantor/settlor then maintains their use and control over the assets until their death. This could be decades after the will containing the testamentary trust is created. After the grantor/settlor passes, the will goes to probate, meaning a court reviews the will and says this will meets all the rules to be a will in Ohio, and therefore will be followed. Once probate is complete, the assets are transferred to the trustee to be managed per the terms set up by the grantor/settlor.

Because the trust is not created until after the grantor/settlor has passed, the cost of creating the trust can be charged to the estate, kicking the cost of creating a trust down the road. However, the need to go through probate is the main disadvantage of a testamentary trust. The probate process can be slow and is part of the public record which is why some choose to opt for estate planning methods that avoid probate.

A testamentary trust does not have a standard expiration date. The person creating the trust determines how long they want the trust to last. Many people opt for the testamentary trust to end when the beneficiary reaches a milestone, such as turning 25, completion of trade school or higher education, or marriage. This makes testamentary trusts superior to a will for protecting inheritance for minors.

Once the testamentary trust is executed, the probate court will continue to monitor the management of the testamentary trust annually until the trust expires. A testamentary trust can be modified while the grantor/settlor is still alive, but once that person passes the trust cannot be changed.

While anyone can manage a testamentary trust, the best practice is to choose someone who can be trusted to act in the best interest of the beneficiaries. It is also important to note that a person can decline to be appointed as a trustee. In this case, the court will appoint a trustee.

How Do I Create My Own Testamentary Trust?

The process of estate planning can be complex. It’s critical to have the guidance of an experienced attorney who can help you create a comprehensive plan tailored to your loved one’s needs. Offering trusted counsel and skillful representation for more than 100 years, we work with clients for a wide range of estate planning matters. Contact Middleton Law Offices today at 419.548.0196 for a consultation to learn how we can help.

Articles appearing in this column are intended to provide broad, general information about the law. This article is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from a licensed attorney.