Avoiding probate is one of the main reasons that many people create a revocable living trust during lifetime instead of relying on a will to transfer their money and assets to their beneficiaries after their death. Probate is the court process that proves the validity of the will and oversees the payment of creditors and distribution of assets to the beneficiaries named in the will. There are pros and cons to probate. After weighing them, some people may prefer to establish a testamentary trust, which is a trust created through a will—even if this means that the person’s money and property must go through probate before the trust is funded and assets are distributed to beneficiaries. There are other reasons why a testamentary trust may be an option to consider. In some cases, a testamentary trust may reduce the upfront costs of creating a living trust.
To Avoid Probate or Not to Avoid Probate: That Is the Question
In deciding whether a testamentary trust is right for your family and loved ones, consider whether avoiding probate is a priority for you. Evaluate the pros and cons, which may vary depending on the size of your estate and where you live.
The fees your estate must pay during the probate process will vary depending on the size and complexity of the estate as well as state law. For larger estates, and in some states, probate can be very expensive. During the probate process, an estate must pay various fees, such as court fees, executor’s fees, attorney’s fees, accounting fees, appraisal and valuation fees, a probate bond, and other miscellaneous fees. These expenses can quickly add up and reduce the amount your beneficiaries will ultimately receive. However, for smaller estates and in some states, the probate process may be relatively inexpensive and may not be a significant consideration in determining whether to choose a will that establishes a testamentary trust at death instead of a revocable living trust.
Probate is typically a time-consuming process, which delays the distribution of assets for months or years. Requirements of state law and complexity of the estate will factor into the time required in probate.
Because probate is a matter of public record, probate results in a loss of privacy. The will, details of the testamentary trust, information about the assets of the estate, and personal information about your family and other beneficiaries, including who is inheriting and the types of money and property they are inheriting, is available for anyone to see. In contrast, a revocable living trust does not become part of the public record, allowing the identities of your beneficiaries and the details about your estate to remain private.
Because it is a court process, probate involves oversight by a judge or court clerk until all distributions have been made. Trustees of a testamentary trust may need to meet regularly with the probate court, which will monitor its administration until the trust expires. While some may find this oversight burdensome, it may provide peace of mind for those who want additional assurance that the trust will be administered as they intended.
Maintain Control Over the Distribution of Money and Property
Beneficiaries under a will generally receive the money or property outright as soon as distributions are authorized by the probate court. If there are minor children, their inheritance must be held for them until they reach the age of majority. However, if you include a testamentary trust in your will, the terms of the trust can specify the timing and amounts of the distributions to your beneficiaries. Although a testamentary trust is created when you pass away, you outline the instructions for the trust in your will during your lifetime and can change them at any time while you are alive.
A testamentary trust may be beneficial for parents of young children, adult children who have many creditors or poor spending habits, or disabled children who need ongoing support and need to maintain eligibility for government benefits. It may also protect beneficiaries in the event of divorce by safeguarding their inheritance during division of property. The trustee you name in your will has a responsibility to make distributions according to the instructions you provide in your will. As a result, you can provide your family members with resources they need over time until the trust terminates. You can specify if you want the trust to continue until your children reach a certain age or meet a particular milestone. In addition, you can instruct what distributions should be used for, prioritizing payments for your children’s health, education, maintenance, or support.
Defer Creation of the Trust Until You Pass Away
A revocable living trust is typically more costly to create upfront, so a testamentary trust may be an option if you need to minimize costs now but think a trust will ultimately benefit your family members and loved ones. A testamentary trust will be created and funded after you pass away and the costs of establishing it will be borne by your estate, which may make it a more affordable option during your lifetime.
We Can Help
Revocable living trusts and testamentary trusts both offer benefits that can ensure that your wishes are carried out and your family and loved ones are cared for. If you are unsure about which type of trust you should include in your estate plan, call us today to set up an appointment. We can help you think through what will work best for your unique circumstances.
