Testamentary Trusts

[Anonymous]

I see recommendations for setting up TTs vs. Revocable Trusts on this forum and others pushing back. Can someone in the field please answer my questions and confirm my understanding?

I know how a RT works - You set it up now with you as the Grantor as well as Trustee and name a successor Trustee, Beneficiaries and spell out what happens when you die. You title assets in its name (or name the Trust as a beneficiary/survivor). On your death all assets get titled to the name of the Trust, the Trust becomes an irrevocable trust, the new trustee takes to administer the Trust.

How does a Testamentary Trust work? Is this it? You write a will specifying the creation of an irrevocable trust and that named assets be moved into that trust with specifics on distribution. The TT will also name a trustee to administer the trust.

Questions: Does this happen at the end of probate or is probate avoided because the will creates a TT? How long is typical probate in the state of virginia in this scenario - $10m in financial assets (brokerage, cash, retirement, insurance) plus a primary residence? How much would it cost? Do beneficiaries have access to any assets during the probate process?
During my lifetime, who do I name as beneficiaries on my investment and bank accounts? No one or the future Trust that will be created on my death?
Why is the creation of a TT cheaper that a RT? Don't the lawyers have to go through the same thought process/effort to create the language necessary? Even if an RT costs more to setup now, don't probate costs (government fees as well lawyer) outweigh the cost of RT now, not to mention the hassle involved with the probate process.

[Anonymous]

The problem is that most of the answers to your questions depends on state law, and even then, a lot of the answers are "it depends."

However, in general, a testamentary trust is cheaper because it is boilerplate language contained within your will, while a revocable trust is a separate set of documents, and requires that all of your assets be retitled into the trust. A lot of people don't do the latter step properly and end up in probate, anyway. Also, having your house titled in a trust can sometimes, but not always, cause issues should you want to refinance (you may be required to move the house out of the trust and then back in). Finally, if it turns out the trust is not needed -- the beneficiary predeceases you, or ages out of needing the trust, etc before you die, you've not wasted the money setting up a trust that wasn't needed.

Finally, having a revocable trust doesn't resolve all of your heirs' problems. There are plenty of examples on this forum (including one recently) of heirs and other family members disagreeing with the trustee and ending up in court, anyway. If you are in probate, you at least have the oversight of the court and have a forum to resolve disputes. Much easier than trying to drag a trustee into court. Ironically, trusts work best when the estate isn't complicated and the heirs all agree on the outcome. If it's contentious, you're probably better off in probate.

How long probate takes varies widely by jurisdiction. If you are in California, for example, revocable trusts are worthwhile because the Court system is a mess and very slow. Other states can be very quick. Also the makeup of your estate matters -- are almost all of your assets accounts that have named beneficiaries? Do you have a huge collection of fine art that must be appraised?

Your heirs get access to accounts on which they are named beneficiaries immediately, unless they are titled into a trust. For assets in probate, this is one of the "it depends" answers. In most jurisdictions, the executor has the authority to make distributions before probate is closed, if it is clear that there is going to be enough $$ to settle the debts of the estate. However, most don't make big distributions, because the executor is on the hook if they make distributions early & the estate's assets come up short. If it's something like a relatively small specific bequest, that can be done as soon as the executor gets a handle on the estate and its debts.

If you have a testamentary trust, the "trust created for Larlo X by the will of Larla X" works as a named beneficiary for accounts that allow the designation of beneficiaries.

If you are single and have $10 million plus in assets and think you're going to live a long time, you are getting close to the estate exemption amount and may want to look into an irrevocable trust. It has additional drawbacks, but does provide tax advantages that revocable and testamentary trusts do not. If you're married, it's not as big a deal because the exemption amount is effectively doubled (it's portable between spouses). But it is probably worth it to you to talk to an estate tax specialist.

[Anonymous]

Thanks!