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Should I Include a Testamentary Trust in My Vermont Estate Plan?

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Your estate planning journey will likely begin with the execution of a Last Will and Testament; however, as you move through the various phases of your life you will undoubtedly find the need to add additional estate planning tools account for your growing family and financial portfolio. At some point, you may decide to add a testamentary trust to your estate plan. To help you decide whether to include one in your Vermont estate plan, the Essex Junction attorneys at Unsworth LaPlante, PLLC explain what is involved in creating and administering a testamentary trust.

What Is a Testamentary Trust?

A trust is a legal arrangement that allows a Grantor (also known as a Settlor or Trustor) to appoint a Trustee to manage and protect assets intended for the benefit of a beneficiary (or several beneficiaries). Trust can be broadly divided into living or testamentary trusts. As the name suggests, a living trust is created and administered while the Grantor is alive, although it can continue after the death of the Grantor. A testamentary trust, however, is created through a provision in the Grantor’s Last Will and Testament and is only administered after the Grantor’s death.

What Are Some Benefits Offered by a Testamentary Trust?

If you are new to estate planning, or to the concept of trusts specifically, you may wonder why you would want to create a trust that doesn’t activate until after you are gone. A testamentary trust offers several important benefits, including:

  • Protecting a minor child’s inheritance: If you have minor children, you certainly want to provide for them financially if something happens to you; however, your minor child cannot legally inherit from your estate. An adult must manage a minor child’s inheritance until the child reaches adulthood. By creating a testamentary trust, you get to decide who that adult is when you appoint the Trustee, and you can decide how the trust assets should be used and when they can be distributed.
  • Control over the distribution and use of assets: Using a testamentary trust to pass down an inheritance lets you stagger the distribution of an inheritance instead of handing a beneficiary a lump sum that they may not be prepared to handle. You also have the ability to include conditions or “incentives” to encourage beneficiaries to use the inheritance wisely.
  • Less expensive to administer: The expenses associated with trust administration begin as soon as the trust becomes active. By relying on a testamentary trust instead of a living trust you can dramatically decrease the cost of administering the trust since those expenses don’t begin until after you are gone.

Administering a Vermont Testamentary Trust

After your death, your Will must go through probate, a legal process that validates the Will and oversees the distribution of your assets. During probate, the court will confirm the appointment of the Executor named in your Will. The Executor is responsible for gathering your assets, paying any debts and taxes, and distributing the remaining assets according to your Will. If your Will includes a provision creating a testamentary trust, your Executor is responsible for making sure the trust is created according to your wishes.  Once probate is complete, the assets designated by you in your Will are transferred to the testamentary trust. Once the trust is funded, the Trustee takes over the administration of the trust. Choosing your Trustee carefully is a crucial step in the trust creation process given the numerous duties and responsibilities the Trustee will have, including:

  • Asset Management: The Trustee must manage the trust assets prudently, investing them wisely to ensure they grow or generate income, depending on the trust’s terms.
  • Record Keeping: The Trustee must keep detailed records of all transactions, including income, expenses, and distributions.
  • Reporting: The Trustee must provide regular reports to the beneficiaries, keeping them informed about the trust’s performance and any significant transactions.
  • Distributions: The Trustee is responsible for making distributions to the beneficiaries according to the terms of the trust. This might include providing income, paying for educational expenses, or distributing principal amounts at certain milestones.
  • Fiduciary Responsibility: The Trustee has a fiduciary duty to act in the best interests of the beneficiaries. This means managing the trust assets with care, avoiding conflicts of interest, and adhering strictly to the terms of the trust. Failure to meet these responsibilities can result in legal consequences for the Trustee.

Can We Help You Create a Testamentary Trust in Vermont?

For more information, please attend one of our upcoming FREE webinars. If you would like assistance creating a testamentary trust for your Vermont 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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