Chances are, you’re familiar with folks talking about “a trust,” “their trust,” but I would guess the word “testamentary” is unfamiliar.

So, I’m going to walk you through what a testamentary trust is, how it differs from a regular/revocable/living trust, and why that matters. 

What is a Testamentary Trust? 

A testamentary trust is a trust that is created upon your death. I.E. you dying is the triggering event for it coming into existence. 

So when people say, “I have a trust,” is this the type of trust to which they are referring? No! People who “have a trust,” usually have a revocable trust, i.e. a living (while they are alive) trust. This is the most common trust. This revocable trust holds stuff, much like a business entity. Assets get titled into it and it sits while you are alive. It may also contain a playbook of other trusts that get triggered when various events occur…like your death. 

Let’s say that you leave money to your children in your revocable trust, but this money, instead of being paid directly to your children, after you die, is held and managed by a Trustee. The Trustee ultimately controls the money for the benefit of the children. What kind of trust is this? This is a testamentary trust (triggered into creation when you die). And more specifically, in this situation, is a testamentary trust WITHIN a revocable trust. 

Do you have to have a revocable trust to have a testamentary trust? 

NO! A testamentary trust can be a part of a will or a trust. 

Your decision between these two options comes down to the factors outlined in our “An Honest Comparison of Wills vs. Trusts” blog series.

What are the benefits of a Testamentary Trust? 

The overarching benefit of a testamentary trust is that you can control when and how your children get the money you’ve left them. By law, minor children can’t be in control of their inheritance until they are adults. So in the absence of a testamentary trust, money would be overseen by a conservator, appointed by a court. This is generally a more restrictive and costly process than simply using a testamentary trust. Again, money held in a testamentary trust is used for the care and upbringing of the children, it’s just overseen and controlled by your appointed Trustee.

In Really Good Wills, our testamentary trusts allow beneficiaries to be co-trustee of their money at age 25 and gain full control at 30. Without these provisions, minor children have full control of their shares as soon as they become adults. Generally this means age 21, but in some circumstances it does mean 18. 

Testamentary trusts also protect money from lawsuits or other judgements. They also serve as a safeguard in the event that your child develops an addiction or any other unhealthy compulsive behavior.

The flexibility, control, and asset protection of a testamentary trust cannot be beat when leaving money to minor children. It gives your children time to grow and mature before being saddled with the weight of big money management.

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