Advantages and Disadvantages of Creating a Testamentary Trust

A testamentary trust is established through your last will and testament. Unlike other trusts, a testamentary trust often does not have a separate trust document. The terms and conditions of the trust are generally found directly in the will. However, the will can also just refer to another document that creates the trust as well.

Testamentary trusts are a commonly used estate planning tool, and they have specific advantages and disadvantages that you should consider if you are debating whether a testamentary trust is a good idea for your situation.

Advantages of a Testamentary Trust

  1. Control Over Funding

Unlike a will, creating a trust allows you to dictate exactly how your money is used after you pass. This is one of the main reasons that people use testamentary trusts—control over funding. For example, if you are concerned that an heir will exercise poor spending habits with an uncontrolled inheritance, a testamentary trust gives control over the money or other assets to another person so that it is used how you intended.

  1. Tax Advantages

Another significant advantage is that creating a testamentary trust has tax advantages. You can sometimes avoid having to pay estate taxes by using a testamentary trust. By creating a trust instead of leaving loved one’s funds outright, there may also be tax advantages for your loved one as well.

  1. Simple

Because you can create the trust as part of your will, it is also very easy to build.

Disadvantages of a Testamentary Trust

Thankfully, the disadvantages of this type of estate planning instrument are few and far between. However, you will still need to consider two major potential drawbacks:

  1. Costs

You are creating something that will need to be maintained after your passing. There are costs related to managing this instrument. Your trustee may be required to report the status of certain assets or funds, for example. You may also need to consider other costs, such as legal fees, bank fees, or accounting expenses.

  1. Dependence on the Trustee

You must have a trustee as part of the trust. The person that you designate to be the trustee can reject that role, which could cause administrative problems for the testamentary trust. You may need to create conditional trustees to avoid that type of situation.

Your unique circumstances will dictate whether there are other potential drawbacks as well. Speak with the team at Legacy Planning Law Group to learn more about whether a testamentary trust is the right option for you and your loved ones.

Written by Legacy Planning Law Group

Legacy Planning Law Group is dedicated to working with individuals and families to help protect the assets they have built throughout their life, and make everything simpler for families who have lost a loved one. We help thoughtful people achieve the peace of mind that comes with planning their personal legacy and passing on family harmony.

Written by Legacy Planning Law Group

Legacy Planning Law Group is dedicated to working with individuals and families to help protect the assets they have built throughout their life, and make everything simpler for families who have lost a loved one. We help thoughtful people achieve the peace of mind that comes with planning their personal legacy and passing on family harmony.