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Trust Law/Level III · Family trusts/3.2 Trusts made by will/Lesson 1

The testamentary trust

How a trust born from your will works after probate

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. For modest estates, California’s free statutory will (Probate Code §6240) names a guardian and a custodian holding a child’s share until an age from 18 to 25, with no bond. Catch: it cannot create a trust and needs two witnesses; notarization does not substitute.
  2. A will-based trust is cheaper than a living trust to set up, since nothing is retitled during life, which can suit young families with few assets. Catch: whatever funds it passes through probate first, and probate files are generally public.
  3. Shrink the probate step: Minnesota lets a transfer-on-death deed name the trustee of a testamentary trust (Statutes §507.071 subd. 9), so land reaches the trust outside probate. Catch: the deed must be recorded before death, and the will still has to be proved.
  4. Weigh ongoing court supervision: Ohio requires testamentary trustees to file accounts at least every two years (Revised Code §2109.303), while UTC §201 has no continuing supervision unless ordered. Catch: where accounts are required, their cost comes out of the trust for its whole life.
  5. Name one or more successor trustees in the will so no court appointment is needed; UTC §704 otherwise lets qualified beneficiaries agree on one. Catch: a named trustee may decline, so ask first.

MaterialsA draft or existing will that includes trust provisionsThe specific state statute on testamentary trust administrationYour state’s rules, if any, on court accountings by testamentary trustees

Wonder

  1. What happens to my assets if I die without a living trust?
  2. Does a testamentary trust stay under court supervision for as long as it lasts?
  3. Who actually manages this trust once the will is admitted?

Explore

  1. A testamentary trust is a trust created by the terms of a will. It does not exist while the person who made the will (the testator, who is also the trust’s settlor) is alive, and before death it can be changed only by changing the will. After death, the will usually has to be proved in probate, and the trust is then funded from what is left in the probate estate after debts, expenses and taxes are paid. Testamentary trusts are often used to hold an inheritance for children or a surviving spouse.
  2. The will normally names the trustee, but a person named as trustee is not required to accept. Under Uniform Trust Code §704, in states that adopted it, if no named trustee or successor is able and willing to serve, the vacancy can be filled by a person all the qualified beneficiaries agree on, or otherwise by a person the court appoints. Once the trustee accepts and receives the property from the executor, the trustee manages and distributes it under the will’s terms and owes fiduciary duties to the beneficiaries.
  3. How much a court stays involved afterwards depends on the state. The model Uniform Trust Code §201 says a trust is not subject to continuing judicial supervision unless the court orders it, although the court can still hear disputes. Some states keep closer watch over testamentary trusts. Ohio, for example, generally requires a testamentary trustee to file an account with the probate court at least once every two years, listing receipts, payments and the assets held, with exceptions set out in the statute (Ohio Revised Code §2109.303).
  4. Where court accountings are required, preparing and filing them takes time and may involve lawyers’ or accountants’ fees, usually paid from the trust. Over a trust that lasts many years, these costs reduce what the beneficiaries receive. In return, a court reviews the trustee’s records, which some families value as a check on the trustee. Filing and professional fees vary widely by state, court and the size of the trust, so no typical figure is given here.
  5. Compared with a revocable living trust, a testamentary trust is usually simpler to set up, because nothing has to be retitled into it during life; it is written into the will. The trade-offs are that its property passes through probate first, which takes time and costs money, and probate files are generally public, so the will and its trust terms can usually be read by others. A living trust avoids probate only for assets actually transferred into it. Neither choice suits every family.
  6. Because the trust starts only after probate, there can be a gap before the trustee can act, and it cannot help if the testator becomes incapacitated while alive. Naming one or more successor trustees in the will reduces the chance that a court must appoint someone. Some people talk with the person they plan to name, since serving can mean years of record-keeping, tax filings and family decisions. The testator can change the will at any time while alive and mentally capable; after death, the testator can no longer change the trust.

Key facts

  • A testamentary trust is created by a will and comes into being only after probate admits the will.
  • If no named trustee can or will serve, Uniform Trust Code §704 lets the qualified beneficiaries agree on a trustee or, failing that, the court appoints one; states vary.
  • Under the model Uniform Trust Code §201, a trust is not under continuing court supervision unless the court orders it, but some states, such as Ohio, require testamentary trustees to file regular court accounts.
  • Where court accountings are required, their cost is usually paid from the trust; amounts vary widely.
  • Probate files, including a will that creates a testamentary trust, are generally open to the public.
  • A person named as trustee in a will is not required to accept the role.

Exercise nine, six, three, one

9CollectList up to 9 tasks or costs that would arise if a trust for your children were created by your will (many families have fewer), such as probate, the trustee accepting, moving assets from the estate, yearly records, tax returns, court accounts where required, and final distribution.
6ClusterSort them into 6 categories: probate, accepting the trusteeship, funding the trust, yearly management, court or tax filings, and final distribution.
3DistillReduce the 6 categories to 3 groups: one-time steps at death, recurring work while the trust lasts, and steps when the trust ends.
1CrystallizeWrite 1 sentence naming which of those 3 groups you know least about, and where you could find your state’s rules on it.

Fact check

Dates, figures and claims checked against the published sources listed below.

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