Why Should I Create a Testamentary Trust? Key Benefits Explained

Short Answer: A testamentary trust can help protect your beneficiaries from poor financial decisions, preserve government benefits for disabled heirs, reduce estate taxes, and ensure your assets are distributed according to your wishes. It’s created by your will and only goes into effect after your death.

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What Is a Testamentary Trust?

A testamentary trust is a trust created by your will. Unlike a living trust, it does not take effect until you die. Your will specifies how the trust is to be funded, who the trustee and beneficiaries are, and under what conditions assets will be distributed.

Top Reasons to Create a Testamentary Trust

1. Protect Young or Financially Inexperienced Beneficiaries

Instead of giving a child or young adult a lump sum inheritance at age 18, a testamentary trust allows you to:

• Delay distributions until they reach a more mature age (e.g., 25, 30)

• Stagger payments over time

• Appoint a responsible trustee to manage and invest the funds

2. Preserve Public Benefits for a Disabled Heir

A special needs testamentary trust can:

• Hold an inheritance for a beneficiary with disabilities

• Prevent disqualification from Medi-Cal, SSI, and other needs-based programs

• Allow for supplemental support beyond what public benefits provide

3. Protect Assets From Creditors or Divorce

If a beneficiary is going through a divorce, lawsuit, or bankruptcy, assets held in a properly drafted testamentary trust are often shielded from:

• Spouses in divorce proceedings

• Creditors and collection efforts

• Financial mismanagement

4. Control How and When Your Assets Are Used

You can include instructions for:

• Education expenses

• Medical needs

• Housing or support

• Incentives for achieving milestones (e.g., graduating college)

This level of control is not available through simple outright gifts.

5. Reduce or Delay Estate Taxes

A testamentary trust, particularly when structured as a credit shelter or bypass trust, can help married couples:

• Use both federal estate tax exemptions

• Avoid triggering unnecessary estate taxes

This can be especially important for larger estates or blended families.

Who Should Consider a Testamentary Trust?

You may benefit from one if:

• You have minor children or young adult beneficiaries

• You have a child or relative with special needs

• You’re concerned about heirs’ financial responsibility

• You want to control distributions after your death

• You’re part of a blended family and want to balance spousal and children’s inheritances

• Your estate may be subject to federal or California estate taxes

Key Differences: Testamentary Trust vs. Living Trust

Feature	Testamentary Trust	Living Trust
Created during life?	No	Yes
Takes effect at death?	Yes	Yes (continues after death)
Probate required?	Yes (because it's in a will)	No (if fully funded)
Privacy	Public (goes through probate)	Private

Downsides to Consider

• Probate is required, since the trust is created by your will

• Court oversight may be necessary, especially for minors

• Less flexibility than a living trust if your wishes change before death

Still, for many families, the benefits outweigh the drawbacks.

How Moravec, Varga & Mooney Can Help

Our estate planning attorneys can help you:

• Decide if a testamentary trust is right for your family

• Draft clear trust terms tailored to your beneficiaries’ needs

• Avoid pitfalls that could jeopardize your goals

Contact us today to schedule a consultation and take the first step in protecting your loved ones’ future.