Testamentary Trusts

A testamentary trust is a type of trust that is created within a will and takes effect upon the death of the person who made the will (the testator). In California, as in many other states, testamentary trusts can be established to address various estate planning goals and provide for the distribution and management of assets. As a Folsom lawyer who specializes in estate planning, I have created numerous testamentary trusts for my clients and there are certain considerations to keep in mind. Here are some key aspects of testamentary trusts in California:

1. Creation within a Will: Testamentary trusts are not standalone trusts created during a person’s lifetime. Instead, they are incorporated into the testator’s will. The will specifies the terms, provisions, and beneficiaries of the trust.
2. Delay in Trust Activation: Unlike revocable living trusts, which take effect immediately, testamentary trusts are activated only upon the death of the testator. At that point, assets designated for the trust are transferred into it, and the trust becomes an independent legal entity.
3. Distribution Instructions: The testator’s will provides detailed instructions on how the trust assets should be distributed, when they should be distributed, and who the beneficiaries are. These instructions can be tailored to the testator’s specific wishes and circumstances.
4. Trustee Appointment: The testator appoints a trustee in the will to manage the trust assets and ensure that the trust’s terms are carried out. The trustee has a fiduciary duty to act in the best interests of the trust beneficiaries.
5. Types of Testamentary Trusts: There are various types of testamentary trusts, each designed to serve specific purposes. Some common types include:
   • Bypass Trusts: Used to reduce estate taxes for married couples.
   • Credit Shelter Trusts: Another name for a bypass trust.
   • Marital Trusts: Designed to provide for the surviving spouse while preserving assets for other beneficiaries.
   • Special Needs Trusts: Created to provide for beneficiaries with disabilities while preserving eligibility for government benefits.
   • Minor’s Trusts: Established to manage assets for minor beneficiaries until they reach a certain age.
6. Estate Tax Considerations: California does not have its own estate tax system. As such, only federal estate taxes come into play. As of 2024, the current exemption amount is $13.61m, meaning that an individual’s estate valued under this amount will not face any federal estate taxes. Testamentary trusts may be used to maximize estate tax benefits for larger estates.
7. Court Supervision: The probate court in California oversees the administration of testamentary trusts to ensure that the trustee complies with the law and the terms of the trust. Essentially, the will itself must be “proven” in the court to ensure that it complies with California law and it is a valid will. If so, the testamentary trust therein will be given effect. 
8. Modification or Termination: Testamentary trusts are generally irrevocable, meaning they cannot be easily modified or terminated. However, under certain circumstances, a court may allow modifications or terminations. It should be noted that such permission is not commonly given by courts and a valid will with valid testamentary trust provisions is generally respected. 

Conclusion

Testamentary trusts can be valuable tools in estate planning, providing for the orderly distribution of assets and allowing for customized solutions to meet the needs of beneficiaries. Consulting with a Folsom attorney who specializes in estate planning can help you create a testamentary trust that aligns with your goals and ensures that your assets are distributed according to your wishes. If you have any questions regarding testamentary trusts or will, please contact Thapar Law at 916-579-0605 or send us a message.