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Reasons to Include a Testamentary Trust in Your Vermont Estate Plan

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Although some people stop after executing a Last Will and Testament, most people continue to expand their estate plan throughout their life, adding and removing tools and components as needed. One of the most popular additions to the average estate plan is a trust agreement. If you decide to include a trust in your estate plan, one of the first decisions you will need to make is whether to create a living trust or a testamentary trust. The Essex Junction attorneys at Unsworth LaPlante, PLLC discuss common reasons to include a testamentary trust in your Vermont estate plan.

What Is the Difference Between a Living Trust and a Testamentary Trust?

All trusts accomplish the same basic thing – allowing the creator (the “Settlor”) to appoint someone (the “Trustee”) to manage assets intended to benefit a designated beneficiary or beneficiaries. One of the first things you must decide when creating your trust is whether you are creating a living trust or a testamentary trust. A living trust is created using a trust agreement. The trust becomes active as soon as the trust agreement is signed, and the trust is funded. A testamentary trust is created using a provision in your Last Will and Testament directing the creation of the trust. Therefore, a testamentary trust doesn’t become active until after your death.

How Do I Know If a Testamentary Trust Is the Best Choice?

Because everyone’s circumstances are unique, it is in your best interest to talk to your estate planning attorney about which type of trust is best for your goals and needs. There are, however, some common situations in which a testamentary trust is the best choice, including:

  1. Your goal is to provide for minor children. If you have minor children, they cannot inherit directly from your estate. A testamentary trust ensures that if something happens to you, assets intended for your minor children will be safeguarded and managed by someone of your choice until they are old enough to inherit the assets directly. The same trust can then stagger the distributions to your young adult children to reduce the likelihood that they will mismanage a large lump sum inheritance.
  2. You want to avoid the cost of administering a trust while you are alive. There are costs involved with administering any trust. If you want the benefits of a trust without the yearly costs while you are alive, a testamentary trust may be the best choice. There will still be expenses involved in administering the trust; however, they will only be incurred after you are gone and will be paid using trust assets.
  3. You want to retain control over how assets are used. Even if your beneficiaries are adults, you may still prefer to retain some control over how they use the assets you gift them. If so, a testamentary trust may be a better option than simply passing down the assets directly in your Will. As the creator of the trust, you can include provisions that only allow assets to be used for specific purposes (such as education or healthcare) and/or provisions that provide the beneficiary with an incentive to use assets as you would prefer that they be used.

Is There a Downside to Using a Testamentary Trust in My Estate Plan?

An important downside to choosing to create a testamentary trust is that a testamentary trust does not help with probate avoidance. Assets held in a living trust are not required to go through probate after your death; however, because a testamentary trust is only created after your death, assets transferred into a testamentary trust do have to go through probate.

Contact an Essex Junction Estate Planning Attorney

For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about when a testamentary trust is the best choice for your estate plan, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.

Ellen LaPlante
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