A testamentary trust is a type of trust that’s created through a will and only goes into effect after the person who made the will (the testator) passes away. Unlike a living trust, which is established during a person’s lifetime, a testamentary trust is formed upon death and must go through probate before it becomes active. It’s a useful tool for estate planning when you want to ensure that assets are managed and distributed according to specific instructions after your passing.

How Does a Testamentary Trust Work?

The process of setting up a testamentary trust starts with including provisions for the trust in your will. You specify the assets to be transferred, the beneficiaries who will receive them, and the trustee who will manage the trust. Because it’s part of your will, it must go through probate before becoming effective, which can take some time depending on the complexity of your estate and local probate laws.

One key advantage of this kind of trust is the control it provides. You can set specific conditions for distributions, such as age requirements for minors or guidelines for spending the funds. This makes it particularly useful for parents of young children or individuals wanting to leave assets to beneficiaries with special needs.

Another benefit is the flexibility it offers. You can create multiple testamentary trusts within a single will, each serving a different purpose or beneficiary. For example, you might set up a trust for your children’s education while also creating another trust to provide lifetime support for a family member with special needs.

Why Consider a Testamentary Trust?

A testamentary trust can be a smart choice if you want to provide structured, ongoing support to your beneficiaries instead of a lump-sum inheritance. For instance, parents often use testamentary trusts to provide financial support for minor children until they reach adulthood or meet other milestones. Setting age requirements for distribution ensures beneficiaries receive funds when they’re mature enough to handle them responsibly.

It’s also a useful tool if you have loved ones with special needs. A properly structured testamentary trust can provide financial support without jeopardizing eligibility for government benefits. It can offer protection against creditors or irresponsible spending by beneficiaries who may not be equipped to handle a large inheritance.

Another reason to consider a testamentary trust is to provide asset protection. If you have beneficiaries who are financially inexperienced, prone to making poor decisions, or dealing with debt issues, a testamentary trust allows you to dictate how and when distributions are made. This safeguard can prevent creditors from seizing assets intended for your beneficiaries.

However, these trusts aren’t right for everyone. Since they go through probate, there’s a lack of privacy and potential delays before assets are distributed. The ongoing management of the trust by a trustee can involve legal and administrative costs that need to be considered.

Potential Drawbacks of a Testamentary Trust

As valuable as testamentary trusts can be, they come with certain downsides. Because they only go into effect upon your death, they’re subject to probate. This process can take months, or even years, to complete depending on the complexity of your estate and whether any disputes arise.

Probate is a public process, which means details about the trust’s assets and beneficiaries may become part of the public record. For individuals who value privacy, this could be a significant drawback. By contrast, living trusts bypass probate and remain private.

There are also potential costs to consider. Setting up a testamentary trust within your will is relatively straightforward, but administering the trust once it becomes active can be complex and expensive. Trustees are entitled to compensation for their services, which can diminish the assets intended for your beneficiaries over time.

How an Estate Planning Attorney Can Help

Creating a testamentary trust can be a valuable part of your estate plan if you want to ensure your assets are managed and distributed according to your wishes. However, the process of drafting a will and including provisions for a testamentary trust can be complicated. You’ll need to consider factors such as trustee selection, trust management, and tax implications.

At Middleton Law Offices LTD, we can help you determine whether a testamentary trust is the right option for you. Our experienced Ohio estate planning attorneys will work with you to design a customized plan that meets your specific needs. Contact us today to schedule a consultation and discuss your estate planning needs.

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.