A trust is a formal arrangement made with a trusted person, or trustee, which conveys property as directed by you. Trusts can be created during your lifetime. These trusts are known as an inter vivos trust, or more commonly as a living trust. Such a trust remains in effect regardless of whether or not they contain property until your death.
But trusts can also be created upon your death. Such trusts are known as testamentary trusts, and as is the case with most everything in this world, there are positives and negatives that go along with it.
A testamentary trust is created through your Last Will and Testament. The trust is not actually created until the person that created the Last Will and Testament passes away. Upon their death, the trust is only then considered created and funded. As the Will does not go into effect until the time of your death, the trust also does not and is not funded until then. Generally, these trusts are created for young children, relatives with disabilities, and others who may be inheriting a large sum of money.
So, why should you create a testamentary trust?
THE PROS:
Testamentary trusts, as an item in your will, fall under the jurisdiction and oversight of the judge and the court. This gives your trust several extra pairs of eyes that determine whether legal requirements have been met. When a trust is created, a trustee is named, and that trustee is responsible for administering the trust according to its terms and on behalf of the beneficiaries. Court oversight ensures that your trustee will cooperate accordingly, should they violate a mandate of the court, or should they act in a manner that goes against your wishes or original purpose of creating the trust.
This is particularly helpful as it ensures that your wishes will be followed to the letter and that your beneficiaries will not have to deal with any daunting issues brought about by mistakes made by your trustee in fulfilling legal requirements.
Furthermore, unlike living trusts or inter vivos trusts, which are created while the creator of the trustee, or the trustor, is still alive, a testamentary trust is created through your Last Will and Testament. Rather than drafting an entirely new and separate document outside of your Last Will and Testament, your estate planning attorney will simply add additional language to your Last Will and Testament, often referred to as “testamentary trust language,” for a slight additional fee. This means that a testamentary trust is often less costly and more simple to create as compared to a living trust or inter vivos trust.
Funding a testamentary trust also tends to be far more simple than funding a living trust, as it is possible to include language in your Last Will and Testament which directs that the testamentary trust be funded by a life insurance policy that pays out when the creator of the Will dies.
A testamentary trust also allows its creator to maintain full control of their assets, such as their property or properties, until they pass away. Until they die, the creator of the trust may amend the terms of the trust or altogether revoke the testamentary trust.
THE CONS:
As this is an item in your Will, the trust is funded during probate, and thus will have to go through the sometime stressful and costly process of probate. During the probate proceedings, assets will be transferred to the trust by a probate lawyer. As the trust passes through probate court, the trust will be held to the Florida probate filing fee. Probate also takes time, with small estates lasting in probate court for a month or more, while medium-sized to larger estates can take several months or even years to process.
Also, the terms of your testamentary trust will be a matter of public record, so anyone can see what you are looking to do with your money. This can be a negative for anyone who values their privacy.
As with any trust, your decision as to who you will name as trustee is incredibly important, as they will maintain a significant degree of control over the trust and its assets after you have passed away. You will want to make sure that you take the necessary time to consider who is the best choice to serve as trustee, and you will need to ensure that the person you select is trustworthy, reliable, and willing and able to perform the duties required of them as set in the trust.
At the end of the day, whether a testamentary trust or an inter vivos trust is right for you is primarily dependent upon your personal preference. Do you want to avoid probate? Do you think you’ll need court oversight? Is having your trust as a matter of public record problematic for you? Once you answer those questions for yourself, and once you consult with an experienced estate planning attorney as to all of your estate planning options and whether they are right for you and your goals, you will have a better understanding of what kind of trust you want, and how the process will work for you and your trustees.
The attorneys at The Orlando Law Group represent and prepare estate planning documents for individuals throughout Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout central Florida.
If you are dealing with an estate planning issue or are looking to establish your own estate plan, please reach out to our office at 407-512-4394, fill out our online contact form.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
Last Updated on February 18, 2023 by The Orlando Law Group
