The Testamentary Trust: The Best of Both Worlds

hands over house and family to illustrate protecting assets and loved ones with a testamentary trust

You have several different options when it comes to creating the right estate plan. Some people believe that a revocable living trust is the best way to go, while others think that a last will and testament (commonly known as a will) is best under certain circumstances. Others may find that a combination of both—through the use of a testamentary trust—provides the right amount of control and protection for themselves and their loved ones.

A Testamentary Trust Can Provide a Solution

A testamentary trust will own accounts and property owned by you in your sole name without beneficiary designations upon your death and enables you to instruct how your money and property will be handled in advance. Unlike a revocable living trust, the testamentary trust is created at your death, and ownership of your accounts and property are transferred to the trust through the probate process.

You Can Protect Your Loved Ones with a Testamentary Trust

Depending on your circumstances, your loved ones may need the extra protection that a testamentary trust can provide.

  • Surviving spouse. Some couples are hesitant to leave everything to their surviving spouse out of fear that the surviving spouse could be taken advantage of, remarry, or otherwise lose the money and property that was left to them. A testamentary trust can allow a surviving spouse to access the money and property while including extra protections to safeguard it.
  • Minor child. In most states, minor children cannot legally own anything. If money and property are left to a minor, the court may need to appoint someone to manage the inheritance and make sure that it is used appropriately. A testamentary trust allows you to select the person to manage the inheritance and provide specific instructions about how the money and property should be used.
  • Special needs individual. If you have a loved one who is currently receiving or may need to avail themselves of certain government benefits due to a disability, a poorly structured inheritance can jeopardize their ability to qualify or keep those government benefits that they need to survive. A properly structured testamentary trust can provide funds to your loved one to supplement what they are receiving from the government without disqualifying them from government assistance.

Your Loved Ones Will Still Have to Go Through Probate with a Testamentary Trust

Probate in brown envelope and judges gavelAlthough you are using a trust to manage and distribute money and property to your loved ones, the probate court will still have to be involved. As opposed to a revocable living trust that is created during your lifetime, a testamentary trust comes into existence at your death during the probate process. The person you name as the executor or personal representative will oversee changing the ownership of your accounts and property from you as an individual to the trustee of the testamentary trust. Once ownership of accounts and property has been changed, the trustee will manage the trust according to the instructions in the will for the trust’s duration. When all of the accounts and property have been given to the intended beneficiaries, the trust terminates. During the administration, the trustee may be required to provide annual reports to the court and other important parties and may have to periodically appear before the judge.

Although the probate process can be time-consuming, expensive, and public, it may be the right option in some circumstances. Some people find that it provides stability and harmony by allowing a third party (the probate court) to oversee the process. This can help families who may otherwise argue over the details to remain cordial and on their best behavior.

Do Not Forget Other Important Documents

Even if you choose to include a testamentary trust as part of your will, there are other important estate planning tools you must have to properly protect yourself and your loved ones. Because a will only covers what happens to your money and property when you pass away, we must also plan for a situation in which you are alive but unable to make your own decisions, which is known as incapacity.

Durable Power of Attorney

A durable power of attorney, often called a financial power of attorney, allows you to choose a trusted person (the agent) to handle your personal financial matters without court involvement. The amount of authority your agent has is determined by the type of power of attorney you have prepared. It can be as limited or as broad as you would like. Another important consideration when preparing a durable power of attorney is choosing when the agent can act. One option is to enable the agent to act immediately once you have signed the document. A second option is to have a springing financial power of attorney that only becomes effective once it has been determined that you cannot manage your affairs. McCreary Law Office almost never recommends a springing power of attorney; in fact, they aren't even allowed in Florida.

Medical Power of Attorney

A medical power of attorney, called a healthcare surrogate designation in Florida, allows you to appoint a trusted person as a decision-maker to communicate on your behalf or make healthcare decisions for you without court involvement.

Advance Directive or Living Will

An advance directive or living will allows you to convey your wishes regarding end-of-life decisions, such as how long to continue artificial hydration and nutrition or how long to continue artificial respiration when you are in a persistent vegetative state or have a terminal condition and with no chance of recovery. This document will help the decision-maker under your medical power of attorney make informed choices for your care. Jana views this as one of the best gifts you can give your loved ones.

HIPAA Authorization

A Health Insurance Portability and Accountability Act of 1996 (HIPAA) authorization form allows you to grant specific individuals access to your confidential and protected information (e.g., to get a status update on your condition or receive your test results) without giving those individuals the authority to make decisions on your behalf. Although your agent under your medical power of attorney will have that authorization, sometimes you want others to have it at the same time. Providing this information to your loved ones can help all parties stay on the same page even if only one person is authorized to make medical decisions on your behalf.

Nomination of Guardian -- for You and Minor Children

In our Comprehensive Plans, we also nominate a guardian for you (if a court ever determines you need a guardian) and for any minor children. By using the separate document for minor children, we can change guardians with ease and without having to update the entire will. This document can be referenced in your will so that your nomination will be known during the probate process.

Let’s Choose the Right Option for You and Your Loved Ones

Green Check MarkThere are many different options when it comes to crafting a plan that is right for you. We are committed to developing a plan that protects you, your loved ones, and your legacy. If you are interested in learning more about testamentary trusts or reviewing your existing estate plan, please give us a call.