Testamentary trusts are powerful estate planning tools that every estate planning attorney should discuss with their clients. When most people think of trusts, they think of something that is completely separate from a will. A testamentary trust is actually a trust that is created within the wording of a will. And given the right circumstances, testamentary trusts are actually a better option than a living trust, i.e. a trust that is created and funded during your lifetime.

First of all, testamentary trusts typically require less work and less money to take care of. This is because they do not actually exist until after you die and your will is probated. And they may never actually come into existence at all (more on that later). Your will spells out the terms of the trust, but the trust doesn’t actually get funded and need a trustee until after you die. Any living trust that you create now requires that a trustee create a separate bank account for the trust, take care of and distribute the trust assets according to your wishes, file annual income taxes for the trust (assuming there is enough trust income), etc. All these activities cost time and money, and the longer the trust is around the more resources are taken up by just having the trust function properly.

Secondly, testamentary trusts can be much more flexible to your needs. For example, let’s say that you want to leave a minor child some money in your estate plan, but you don’t want them to actually control that money until they are a certain age – let’s say at the age of 30 in this example. Well, you could create a living trust for that child now, but what if you don’t actually die until a time after that child has already reached the minimum age of 30? Well, this living trust was kind of a waste of time and money, at least as far as preventing that child from getting the assets before turning 30. A testamentary trust is just words in your will until they are actually activated at your death. And if you die at a time when the child has already reached the age of 30, then the trust would not get created, saving your estate the time, money and effort of having a living trust in the first place.

Likewise, testamentary trusts can help plan for some of the ‘what-if’s’ in life. For example, what if one of your intended beneficiaries becomes incapacitated in some way, like they get dementia or some other special needs type of condition. Well, you can create testamentary special needs trusts to better help them in life. Or what if you are concerned that a particular beneficiary is not good with handling money? You could create a testamentary trust that says for this person his share of your estate will be held in trust for most or even all of his life. That way you can help make sure the assets help the person more in his life.

There are definitely other aspects to living trusts vs testamentary trusts, but at the very least you should talk to you estate planning attorney about which is best for you. And it may possibly be a combination of the two or even none at all.