An Overview of Purpose, Structure, and Key Considerations
What Is a Testamentary Trust?
A testamentary trust is a legal arrangement created by a person’s last will and testament. Its primary purpose is to manage and protect assets for beneficiaries—often minor children—after the death of the person who made the will (the testator). Unlike living trusts, a testamentary trust only comes into effect upon the testator’s death and after the will is probated by a court.
Why Use a Testamentary Trust for a Minor Child?
Minor children (typically under the age of 18 or 21, depending on state law) cannot legally manage significant inheritance or property. A testamentary trust ensures that any assets designated for a minor are managed by a responsible adult, known as the trustee, until the child reaches a specified age or milestone. This arrangement provides financial security and oversight, preventing mismanagement of funds and offering protection from creditors or other potential risks.
How Does a Testamentary Trust Work?
- Creation: The trust is established in the will, specifying which assets are to be held in trust and naming the trustee and beneficiaries.
- Activation: The trust becomes effective only after the testator passes away and the will is probated.
- Trustee’s Role: The trustee manages, invests, and distributes trust assets according to the terms set forth in the will, always acting in the best interests of the minor child.
- Distribution: The trust typically outlines when and how funds should be used (e.g., for health, education, support, or maintenance) and at what age or circumstances the child will receive full control of the assets.
A testamentary trust for a minor child is a vital estate planning tool to ensure that a child’s inheritance is managed responsibly and used for their benefit until they are mature enough to handle the assets themselves. Consulting with an estate planning attorney is recommended to ensure that the trust is properly structured and complies with all relevant laws.
