What Is a Testamentary Trust in Missouri?
A testamentary trust is a trust created within a person's Last Will and Testament. Unlike a revocable living trust, it does not exist during the person's lifetime. Instead, the trust comes into existence after death when the will is admitted to probate and assets are transferred into the trust.
Because a testamentary trust is established through a will, it remains subject to Missouri's probate process. This distinguishes it from a properly funded revocable living trust, which may allow assets to pass outside probate.
Missouri's Uniform Trust Code specifically recognizes trusts created through a will. Sections 456.4-401 and 456.4-402 of the Missouri Revised Statutes provide general guidance regarding the creation and validity of trusts which include
- Intent to create a trust
- Capacity of the settlor
- A trustee
- Trust duties
- Definite beneficiaries (unless otherwise permitted by law)
- Proper separation of trustee and beneficiary interests
Why Do Missouri Estate Plans Use Testamentary Trusts?
Although testamentary trusts do not avoid probate, they can provide significant control over how assets are managed and distributed after death. Rather than leaving an inheritance outright to a beneficiary, a testamentary trust allows a trustee to manage assets according to instructions contained in the will. This can be particularly helpful when a beneficiary is young, financially inexperienced, vulnerable to creditors, or has special planning needs. Common reasons Missouri families use testamentary trusts include:
Minor Children
Parents frequently use testamentary trusts to prevent children from receiving a large inheritance at a young age. Instead, assets can be managed by a trustee and distributed according to a schedule established in the will. For example, a parent may direct that a child receive one-third of the trust at age 25, one-third at age 30, and the balance at age 35.
Asset Management and Spendthrift Protection
Some beneficiaries may not be prepared to responsibly manage a substantial inheritance. A testamentary trust allows the trustee to make distributions over time rather than providing immediate access to all inherited assets.
For example, instead of receiving a $500,000 inheritance outright, a beneficiary may receive distributions as needed for health, education, maintenance, and support.
Asset Protection
A properly drafted trust may provide a layer of protection for inherited assets. Depending on the circumstances, trust assets may be better protected from creditors, lawsuits, divorce proceedings, or financial exploitation than assets distributed outright to a beneficiary.
Blended Families
Testamentary trusts are often used in second-marriage situations. A trust can provide financial support for a surviving spouse during his or her lifetime while preserving remaining assets for children from a prior relationship.
Beneficiaries with Disabilities
Trust provisions may be structured to help preserve a beneficiary's eligibility for certain public benefits while still allowing trust assets to be used to enhance the beneficiary's quality of life.
The Bottom Line
The primary purpose of most testamentary trusts is not probate avoidance. Instead, they are used to provide long-term management, protection, and control over how inherited assets are distributed after death.
Is a Testamentary Trust Revocable or Irrevocable?
One common misconception is that a testamentary trust is the same thing as a revocable living trust. A testamentary trust remains revocable during the testator's lifetime because it exists only as a provision within a revocable Last Will and Testament. During life, the testator may change the trust terms, replace beneficiaries, appoint a different trustee, or revoke the will altogether.
Upon the testator's death, however, the will generally becomes irrevocable, and the terms of the testamentary trust become fixed. Once the will is admitted to probate and the trust is established, the deceased testator can no longer change the trust's provisions. For this reason, a testamentary trust is generally considered an irrevocable trust after death.
In practical terms:
- The will generally becomes irrevocable at death.
- The testamentary trust is established according to the terms of the will.
- The trust's beneficiaries, trustee, and distribution provisions become fixed, subject to limited exceptions permitted by law.
- The trustee must administer the trust according to its terms and applicable Missouri law.
This distinction is important. Unlike a revocable living trust, which exists during the settlor's lifetime and may be amended until death or incapacity, a testamentary trust comes into existence only after death and generally operates as an irrevocable trust.
Do Testamentary Trusts Avoid Probate?
Another common misconception is that testamentary trusts avoid probate. They do not.
Because a testamentary trust is created through a Last Will and Testament, the will must be filed with the probate court and the probate estate must generally be administered before assets can be transferred to the trust.
Although the testamentary trust becomes effective at death, it cannot begin operating with trust assets until the trust is funded. Assets passing through probate cannot be transferred to the trust until the estate administration process is complete.
What Are the Probate Steps for a Will with a Testamentary Trust?
A testamentary trust is created through a Last Will and Testament, so the estate must generally pass through probate before assets can be transferred into the trust. The probate process for a will containing a testamentary trust is similar to the probate process for any other will and typically includes:
- Opening the probate estate.
- Appointing a personal representative.
- Identifying and gathering estate assets.
- Paying debts, taxes, and administration expenses.
- Resolving creditor claims and other estate matters.
- Distributing the remaining assets to the testamentary trust.
Once the probate estate transfers assets to the trust, the trustee begins administering the trust according to its terms. This often includes obtaining a federal Employer Identification Number (EIN), opening trust accounts, and transferring title to trust assets when necessary.
Depending on the assets involved, administration may include:
- Retitling bank accounts into the trust's name.
- Transferring brokerage accounts to the trust.
- Recording deeds reflecting trust ownership of real estate.
- Assigning business interests or other property to the trust when appropriate.
Only after assets have been transferred to the trust can the trustee manage and distribute them for the benefit of the trust beneficiaries.
Because a testamentary trust requires probate before it can be funded, it is generally not the preferred planning tool for individuals whose primary goal is avoiding probate. In those situations, a properly funded revocable living trust may be a more effective option.
Is a Testamentary Trust Right for Your Family?
A testamentary trust can be an effective estate planning tool for families who want to control how assets are managed and distributed after death. However, it is not always the best solution.
A testamentary trust may be appropriate when your goals include:
- Protecting minor children
- Structuring distributions over time
- Providing asset protection for beneficiaries
- Preserving assets for future generations
- Planning for beneficiaries with disabilities
On the other hand, a testamentary trust may not be the best choice when your primary objectives are:
- Avoiding probate
- Maintaining privacy
- Planning for incapacity
- Minimizing probate administration delays
In those circumstances, a properly funded revocable living trust may be a more effective planning tool.
A testamentary trust is a powerful estate planning tool that allows Missouri families to control how assets are managed and distributed after death. While it does not avoid probate, it can protect children, preserve inheritances, provide ongoing asset management, and help families achieve important long-term estate planning goals. Determining whether a testamentary trust or a revocable living trust is the better option depends on your family's objectives, assets, and overall estate plan.
Not sure whether a testamentary trust or a revocable living trust is right for your family?
The best estate plan depends on your goals, your assets, and the people you want to protect. At Tucker Legal Services, we help Missouri families evaluate their options and create customized estate plans designed to meet their unique needs. Tucker Legal Services dba Your Estate Ally is an estate planning law firm near you.
Schedule a consultation today with Sheri Tucker to discuss the right trust strategy for your family. Call 314-332-0011
Frequently Asked Questions About Missouri Testamentary Trusts
Does the Testamentary Trust need an EIN?
Generally, yes. Once a testamentary trust is funded and begins operating as a separate legal entity, the trustee will typically obtain a federal Employer Identification Number (EIN) for the trust rather than using the deceased person's Social Security Number.
How does the Trustee apply for an EIN?
A Trustee needs to visit the IRS.Gov website and apply for the EIN. Avoid using third-party applications which are costly. There is no charge from the IRS to obtain an EIN. If you are unsure of the process, work with your attorney for help.
What Is a Trustee Acceptance?
A Trustee Acceptance is a document signed by the person nominated as trustee confirming that they are accepting the duties and responsibilities of serving as trustee of the testamentary trust.
While Missouri law generally allows a trustee to accept the role by exercising trustee powers or otherwise acting as trustee, a written Trustee Acceptance creates a clear record of the trustee's appointment and authority.
