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Testamentary Trust Will 

A testamentary trust is a legal arrangement whereby a person (the “testator”) designates another person (the “trustee”) to hold property or assets for the benefit of a third person (the “beneficiary”).

The testator may also specify in the trust instrument how and when the trust property is to be distributed to the beneficiary.

A testamentary trust comes into existence only on the death of the testator. It is not a separate legal entity during the testator’s lifetime.

The trustee has legal title to the trust; a testator may specify in the trust that the trustee holds the property for the benefit of the beneficiary and that the trustee is not allowed to use the trust property for their benefit.

This article contains detailed information on all you need to know about a testamentary trust.

What is a testamentary trust will?

A trust formed in line with the instructions in an individual’s will at the time of their death is referred to as a testamentary trust.

It is not possible to create a testamentary trust until after the deceased individual has passed away and the executor has settled the properties in accordance with the contents of the will.

A testamentary trust is established so the beneficiaries’ interests may be protected while the deceased’s assets are managed.

It is possible to designate minors as beneficiaries of a testamentary trust, in which case the dead person’s assets are distributed once the beneficiaries reach a certain age.

Additionally, a testamentary trust may lessen the amount of estate tax that must be paid and guarantee that the dead person’s assets are professionally managed. 

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How does a testamentary trust work?

In a testamentary trust, there are typically three persons involved;

  • the grantor or testator who forms the trust.
  • the trustee, who oversees the assets held in the trust.
  • the beneficiary or beneficiaries who are mentioned in the will. 

The trustor creates the testamentary trust, which will become operational when the trustor passes away.

A testamentary trust is a section of a will that appoints a trustee for the deceased’s properties and gives that individual instruction on how to establish the trust. 

However, since the will has to go through the probate procedure, the trust cannot be formed right once after the individual has passed away.

After the administration of the estate has been settled according to the terms of the will, the executor will be able to form the trust and transfer the property into it.

Until the trust is terminated and the funds are distributed to the beneficiary, the appointed trustee is responsible for managing the assets.

Typically, a given occurrence, such as the beneficiary reaching a certain age or graduating from college, will trigger the end of the trust at a certain time.

The probate court may conduct audits at regular intervals up to the trust’s termination date to verify that it is being administered correctly.

The grantor of the trust has the ability to choose anybody they want to serve as trustee. However, the selected trustee is not required to take on this job, and they are free to refuse the request if they want.

If this occurs, the court may appoint a trustee, or a family or friend of the affected beneficiaries may voluntarily step forward to serve in this capacity.

How to write a testamentary trust will

A testamentary trust is created when a person writes their will for their properties and includes it with the trust provisions. It is essential to bear in mind that in order for a testamentary trust to become active, the testator must first pass away.

The initial stage when writing a testamentary trust will is when the grantor chooses a trustee and a beneficiary. When establishing a trust, the settlor decides which assets will be contributed.

This may also involve dictating the timing and manner of distribution to the recipient. In a final will, this message is conveyed to the recipient. The trust is created, and the assets are distributed when the probate procedure is completed.

There is no restriction on the number of testamentary trusts that may be included in a person’s final will. A testamentary trust may be easily drafted with the help of the numerous available resources on the Internet.

The paperwork involved in doing so can quickly become complex, and individuals who lack legal training run the risk of signing away significant rights without fully understanding the implications of their actions.

Failure to properly prepare for something might have potential future legal repercussions. It is highly recommended to consult a lawyer for assistance in drafting your testamentary trust paperwork to ensure it conforms to the laws of your province.

This also guarantees that the proper documentation is prepared to divide your assets fairly. 

What is a testamentary trust document all about?

A document appended to a person’s will and outlines certain information or instructions is referred to as a testamentary document.

This document may contain a confidentiality agreement that could absolve a person or party of all financial and legal responsibility.

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Benefits of a testamentary trust

The use of testamentary trusts is an excellent approach to strengthening your will. It also ensures that your assets are dispersed in accordance with your preferences when you pass away. The following are the benefits of testamentary trust;

Protection of assets

The main advantage is supposedly the legal security of one’s possessions after death. The assets held in testamentary trusts are shielded from legal actions that are taken against them and any potentially imprudent financial choices made by the beneficiaries. 

If the deceased person, such as a parent, wants their assets to be given to their young in the event of their untimely death, the decedent may wish to consider establishing a testamentary trust.

It is also possible for a parent to create a testamentary trust for their children with the instruction that the assets will only be delivered to the beneficiaries after they reach a certain age. When the children reach a specific age, the assets that belong to them will be given to them.

Number of beneficiaries

When it comes to the writing of testamentary trusts, there is no predetermined limit on the number of beneficiaries you can mention.

Changing instructions in the document

Considering that the trust has not yet been established, a testamentary trust has the advantage of being able to be altered while the person creating it is still alive.

To put it another way, a testamentary trust is effectively the same thing as a revocable trust since a will may be altered at any point in time before a person dies away.

No transfer cost

When assets are transferred from a testator to a trustee, there are not often any extra taxes taken out at that time. The income received from life insurance policies may also be protected from taxable income by using trusts.

Insurance policy

A testamentary trust is advantageous in that it may be funded using the benefits from a life insurance policy after the owner’s death.

In order to do this, the settlor of the trust is required to name the life insurance policy beneficiary as the trust’s trustee. The proceeds from the life insurance policy will be deposited into the trust when the settlor has passed away.

Drawbacks of a testamentary trust

It does not avoid probate

Probate cannot be avoided when using a testamentary trust. One of the most significant drawbacks of a testamentary trust is that it does not prevent the need to go through the legal process of probate.

A probate is a court-supervised procedure that validates the distribution of a settlor’s assets. 

To put it another way, whoever is named as the executor of the deceased person’s will is the one who is responsible for proving to the local court validity of the will. The validity of a will be carried out through the use of the will and other relevant documents.

The executor has the authority to distribute the deceased person’s assets and establish the testamentary trust.

There is a chance that the deceased’s wishes will not be carried out under the trust

If the trust is not formed while the testator is still alive, as is the case with a living trust, there is a risk that the wishes of the dead person will not be followed out after they have passed away.

Suppose there is any ambiguity or vagueness in the will of the deceased. In that scenario, the testamentary trust may not be established immediately after the death. 

While a will is being probated, the dead person’s assets are made public

Since a testamentary trust is required to go through the process of probate, the details of the trust end up in the public domain. This is another drawback of a testamentary trust. Consequently, the record of the testamentary trust’s beneficiaries would be available to the public.

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FAQs about testamentary trust wills

What is a testamentary trust will?

The directions of a person's last will are used to form a Testamentary Trust, which describes the circumstances under which particular beneficiaries will receive their share of the trust's assets at specific times in the future. In contrast to a Living Trust, a Testamentary Trust only comes into force when the person who created it has passed away. A grantor, a trustee, and a beneficiary are the three primary participants in the description of a Testamentary Trust. The grantor, also known as the person who creates the Trust, is the one who chooses who will serve as the trustee to manage the assets that will eventually be distributed to the beneficiary. In most cases, parents with young children are the ones who establish these trusts so that their children's assets would be dispersed to them after they reach a specific age or achieve a particular goal.

Will a testamentary trust avoid court probate?

The legal procedure known as "probate" is carried out in a local court and establishes the validity of a will and its designated executor. Even if you have a testamentary trust, your assets still need to go through the probate process. This is because the court will need to verify the validity of the trust and oversee how the assets are distributed. Due to this, testamentary trusts cannot provide the amount of anonymity expected by most people. In addition, there are court costs involved with the probate process, the total amount of which is contingent upon the amount of time it takes for assets to be distributed.

Who is eligible to serve as the trustee of a testamentary trust?

It is up to the testator or grantor of the trust to decide who will serve as trustee, but that person should be someone they can put their faith in to make decisions that are in the best interests of the children, or anyone else will benefit from the trust money. If the person who was selected to take on the role of trustee decides not to do so for whatever reason, either another individual may volunteer to take on the role, or the court can appoint someone.

Can a testamentary trust be revoked?

A Testamentary Trust is considered revocable if the grantor is still living and the trust has not yet begun to function. During this time, the testamentary trust may still be modified. A Testamentary Trust becomes irreversible when the grantor passes away, which means that it cannot be modified beyond a particular point in time. This arrangement may be advantageous since it eliminates the possibility that the assets will be relocated and taxed several times.

Do I need to work with a lawyer in order to get a testamentary trust?

While going through the process of probate, getting a letter of testamentary often requires the assistance of a lawyer or attorney. This is especially necessary when there are several beneficiaries of the trust. But, the rules in each state might be different, and in certain situations, any individual could be able to apply for the probate process for a will. Cases like this only happen in certain circumstances.

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