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Explained: Testamentary Trusts

Thomas Bradley & Co are excited to announce and promote our new Will writing service – the Testamentary Trust Plan. This is available to clients old and new, if their circumstances deem it to be an appropriate consideration. We have taken the time here to answer some questions which you may have when considering if a Testamentary Trust Plan is right for you.

What is a Testamentary Trust?

A Testamentary Trust is a Will-based Trust which exists after you have passed away. This trust outlines which assets are being gifted to who, and when they are to receive them. Testamentary Trusts are often used as a method of passing on inheritance to beneficiaries who are not able to handle their finances such as young children, persons with disabilities etc. Testamentary Trusts can be useful when it comes to wealth management and estate preservation as they provide instructions for Executors and Trustees on how to distribute the estate of the deceased, which can reduce tax liability.

How do Testamentary Trusts work?

As mentioned above, the Testamentary Trust does not become a Trust until the settlor has passed away. The trust is created to manage a deceased persons estate on behalf of the beneficiaries who are set to inherit. They can be set up with conditions which must be met by the beneficiaries before they can inherit. An example of a condition stipulated by the deceased could be that the beneficiary only receives access to funds to assist them in education until they reach the age of 25, where after they will inherit the remaining funds.

To set up a Testamentary Trust you need 3 parties:

Ø The Grantor who creates the Trust

Ø The Trustee who manages the Trust assets.

Ø The beneficiary or beneficiaries who are set out in the Will to inherit from the Trust.

It is important to note that while the Grantor can appoint anyone to act as a Trustee, the appointed person is not obligated to accept the role and can decline the request. If this occurs, the Court can appoint a Trustee if there are no substitute Trustees appointed.

It is highly advised that you put considerable thought into who you are appointing as a Trustee and appoint someone which you Trust to carry out your exact wishes when it comes to administering your Estate. We recommend this as when you appoint a Trustee you are placing them in charge with the management and administration of your Estate until the beneficiaries meet their conditions for inheritance. This means that while they may be liable for any damages which may arise from violating your instructions, they are able to manage it in a way they see fit until the conditions of your beneficiaries are met.

Upon death, the Testamentary Trust must first go through the Probate process before the Executors can establish the Trust. Once the Trust has been set up, it is then up to the Trustees to manage the Trust until the Trust expires, which generally is tied to an event mentioned in the Will, i.e., when the youngest beneficiary reaches 25. Unlike Living Trusts, the Testamentary Trust is irrevocable once established due to the fact that the Grantor has passed away.

Advantages of a Testamentary Trust

A Testamentary Trust can be Amended.

One of the primary advantages of a Testamentary Trust is that just like a Will, they can be amended. This is because the Trust has not yet been established, and the Grantor is alive to take into consideration any circumstances which may have changed. Additionally, changes can also occur multiple times during the Grantors lifetime.

Cost of Testamentary Trust Plan

Cost is another benefit of the Testamentary Trust plan as this is cheaper than establishing a Living Trust. With the ever-growing cost of living in the UK, families and parents of those who cannot take care of their own finances are more likely to be able to afford the Testamentary Trust plan which will allow them to take care of their assets and their loved ones for a lesser cost.

Note: It is also important to note that the cost of establishing of the Testamentary Trust upon the Grantors death will be deducted from their estate.

Disadvantages of a Testamentary Trust

Probate is Necessary

A significant disadvantage of Testamentary Trusts is that they do not avoid Probate which is the process of distributing assets through the Court. Probate is necessary in order for the Trustees to be able to lawfully move the assets into the beneficiaries name – which can take a prolonged period of time from when the Grantor dies to the beneficiaries inheriting and the Testamentary Trust being established.

Lack of Privacy

Lack of privacy is a disadvantage to the Testamentary Trust because cases which go through Probate are a matter of public record, which means that the beneficiaries and their inheritance are also a matter of public record.

If you would like to find out if a Testamentary Trust is right for you, get in touch with us today to speak to one of our trusted advisors.


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