When you die, many of your assets will have to go through probate before they can be distributed to your beneficiaries. Probate is the process whereby a representative for your estate gathers your assets, pays your creditors, and distributes your remaining property under the terms of your Will. Whether your Will gives these assets directly to your beneficiaries or places them in a trust, your assets must go through probate.
A testamentary trust is a trust created in a Will, unlike living trusts that are created while you are alive. Living trusts can be revocable, meaning you can cancel the trust and take your property back, or irrevocable, but both allow you to put property into the trust while you are alive. This is often called “funding” the trust. Testamentary trusts, however, are not created until your death, so it is not possible for you to transfer your assets into a testamentary trust during your lifetime. All of the assets used to fund your testamentary trust are placed into that trust after your death.
Since your testamentary trust is created and funded by the language of your Will, a probate court must make a determination that your Will is valid before the trust can be created. Generally, courts do this at the beginning of the probate process. The court next appoints a Personal Representative to manage your estate, typically the person you named to perform that duty in your Will. Since your Will creates the trust, your PR has the responsibility of establishing the trust according to the terms of your Will. Your PR is responsible for distributing your assets once they pay your creditors, but they cannot distribute assets to a trust until they create that trust during probate.
Since trusts are formal legal structures, they cannot be started without legal paperwork. Even though the trust is developed by your Will, the trust causes additional paperwork, responsibility and expense for your PR and estate. The person in charge of your trust (the Trustee) can be your PR or someone else. Depending on state law, the Trustee may be required to make periodic reports to the court regarding the status of the trust for as long as the trust exists.
If you have a question about using testamentary trusts as part of your estate plan, give us a call at 253.858.5434 to set up an appointment today. We proudly serve clients throughout Washington and Idaho and are available to meet in person, by phone, or via Skype or FaceTime.