One way to do so is via a testamentary trust. Some prospective clients have, perhaps on recommendation of a family member or friend in another state, asked whether they can do a sort of will-trust hybrid. The answer of course is yes – with a testamentary trust you can! The question, however, is whether that will really accomplish your goals. A testamentary trust is created (like a little zygote) in a will and only comes into being (is born) once you die and your will is probated (that is, goes through the official public probate court process to wrap up your final affairs).
Testamentary trusts have traditionally required oversight by and remained in the probate court’s jurisdiction – think: Big Brother watching. Practically what this has meant is the person you choose to serve as trustee would have to spend a lot of unnecessary time and money reporting back to the court and accounting for all his or her choices. That was just more of a burden on your chosen trustee, who more often than not is a family member or friend earning little to nothing for his or her dedicated service on behalf of you and your family and someone whom you likely didn’t want to burden anyway. In addition, instead of your hard-earned money going to your children as you likely would intend, a goodly portion of it would be spent on court costs, professional fees, and related expenses. And it would all be a matter of public record to boot, meaning that the local paper and anyone else who wants could see and report on exactly who got how much, when, and how, even if that might not be the best thing for your children to have that information be made public knowledge.
Accordingly, the more attractive choice and frankly, the better practice for most people with minor children looking to accomplish the goals of providing for and protecting their children’s inheritance, has been to establish a revocable living trust (a.k.a. “inter-vivos” meaning “between living people” trust). A revocable living trust is created concurrently with, but separate and apart from, one’s will and then, in order to effectively avoid the public probate court process, “funded” with your assets during your lifetime. You can change it up as much and as often as you want during your lifetime. Then once you die, your bare-bones pour-over will basically just says everything is to be handled according to the terms of your trust. The basic will is probated, and your trust is kept private as a separate document and handled between your loved ones and your lawyer without the need for court involvement. This ensures that the amounts and timelines for inheritance by your children will not be a matter of public record, there will be no delay in getting the money to the children’s guardians for their immediate support, and the trustee can otherwise carry out your wishes without Big Brother’s input.
Quick aside: As you can see, the matter of whom to name as trustee is not to be taken lightly, and if you cannot identify someone whom you would trust in that fiduciary capacity, you may be better off appointing and paying for a professional trustee or going the old testamentary trust route with the court’s watchful eye on your trustee. This is one of numerous examples where there is no one size fits all estate plan and it really is critically important to discuss all of your personal, legal, and financial circumstances with your attorney so she can properly advise you of the best course of action for you. (This is also where all the fill-in forms and DIY approaches fail miserably, but I’ll just stop myself there… for now!)
I mentioned in my last blog post that the law is changing and may affect your decision about the best plan for your family. Massachusetts has adopted, with its own state-specific alterations, the Uniform Probate Code. One of the biggest changes in this new piece of legislation specifically addresses the above-mentioned frustrations people have expressed regarding testamentary trusts. These provisions are set to take effect next summer. Thereafter, trustees of uncontested testamentary trusts (those established by a will as opposed to stand alone trusts established during one’s lifetime) will no longer have to account to the court. This change puts testamentary trusts on much more even footing with revocable living trusts than they had been previously. Trustees of testamentary trusts will have to make annual accountings to the beneficiaries of those trusts rather than to the court and the court will only get involved on petition of an interested party. So what does that mean for parents of minor children? Obviously the trustee will not be making accountings to a minor child! (Can you imagine that bedtime story?) In practice it would seem that once this new law takes effect, you could choose to name the same person as trustee and guardian of your children and there would be no practical need for accountings. Alternatively, for some oversight, you could also name one person as guardian of the children and another as trustee and have the trustee account to the guardian.
Let’s review the differences between testamentary trusts and living trusts as they generally exist now: