Testamentary Trust

What is a Testamentary Trust and How is it Different from a Living Trust?

A “testamentary trust” (or a “T-Trust” for short) is a trust that is written into the terms of your Last Will and Testament. The word “testamentary” simply means something that relates to or is appointed through a Will. That’s why it’s called a “testamentary trust.” It relates to and is created through your Will.

Now, because it’s written into your Will, a T-Trust doesn’t go into effect or “come into being” until after you die, and your Will is presented to and allowed by the Probate Court. This makes sense because your Last Will and Testament is the legal document that you write while you’re living, but it doesn’t “speak for you” until after you die.

In contrast, a living trust is a trust that you create while you’re living, but, unlike a T-Trust, it goes into effect immediately when you’ve signed it. So, in a way, your living trust speaks for you while you’re living and it can continue to speak for you even after you die because the successor trustee that you’ve named will simply step in and follow the rules of your trust. For more on living trusts, check out these videos we’ve created on the subject in our SouthCoast Estate Planning Video Center.

Now, you may be wondering why we sometimes use T-Trusts when we are doing estate planning for someone. Well, there are many different types of trusts and we use them for all sorts of different reasons depending on your concerns and the things you wish to accomplish to protect your family.

With that said, we might use a T-Trust when you have minor children and you don’t want them to inherit everything as soon as they turn eighteen. With a T-Trust, everything that is titled in your name and which passes through your Will is going to flow into your T-Trust that will have rules for your trustee on how to manage and use your kids’ inheritance for their benefit.

Sometimes we use T-Trusts when we’re doing “nursing home planning,” and we want to protect some assets of a couple from the high costs of long-term care if one of them became sick. For example, under Medicaid rules, a T-Trust might provide a safe harbor for the assets of a deceased spouse if the health of the surviving spouse deteriorates to the point of needing full-time care in a nursing home. The T-Trust, of course, must include certain rules and language that will allow the property that passes into the T-Trust to be protected.

As you can see, testamentary trusts are just “one tool in the toolbox” that we can use when creating a Family Legal Plan for a family. If you’re interested in learning more about T-Trusts and how they may be used to protect you and your loved ones, schedule your complimentary Legal Planning Session today.