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Exploring some of the unique features of testamentary trusts

Can a will contain a trust? An attorney knows that answer to be yes. Upon the settlor’s death, a trust described in a will, known as a testamentary trust, becomes active and the designated trustee takes control of its management. However, a testamentary trust generally must go through probate because a will is involved.

If it requires probate, why would someone choose a testamentary trust over a living trust? One answer might be personal comfort level. A testamentary trust allows a settler to approach estate planning with a will. For individuals that are more familiar with wills, that option can be a source of comfort. 

Notably, a testamentary trust still provides many of the benefits associated with other types of trusts. For example, testamentary trusts still allow an individual to include restrictions on how the designated beneficiaries may receive payments or trust principal. A settlor need only specify those restrictions in his or her will, and the probate court will do the rest.

Another reason to use a trust in a will might be as a safeguard against unaccounted for estate property, or property acquired after a trust may have been created. An estate can avoid probate only if it doesn’t have assets. Trust principal is not considered part of the estate, and thus avoids probate. However, assets must be specifically titled in the name of a trust. Any property that is acquired subsequent to the creation of a trust and not specifically transferred into the trust may have to go through probate.

Notably, the concept of having trust language in a will, as with a testamentary trust, is not new. For example, a pour-over will can instruct that any property in the estate that is not owned by a trust should be transferred into that trust.

Source: FindLaw, “Trusts: An Overview



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