Louisiana Testamentary Trusts Explained:

A trust is a legally binding document created by a grantor (also known as a settlor or trustor) that holds assets for beneficiaries.  A trustee is appointed and is responsible for managing the trust assets and proceeds in accordance with the terms set by the grantor. 

A “testamentary” trust allows the grantor to transfer ownership of their property to the trust upon their death.  Per La. R.S. 9:1733, “[a] trust is testamentary when it is created by donation mortis causa.”  This is in contrast to a living trust which becomes effective immediately.  Testamentary trusts are created as part of one’s last will and testament and are among the easiest estate planning tools to create.  The terms of a testamentary trust do not become effective until after the grantor’s death.  Thus, if one’s needs change, he or she can modify or even revoke the trust altogether.

Testamentary trusts become effective after the will goes through probate.  The trust will not transfer assets outside of probate since the grantor owns the assets at the time of his or her death.  Testamentary trusts enable people to fully achieve their estate planning goals, even with non-probate assets such as insurance proceeds and retirement plans.

Benefits of a Testamentary Trust:

Control:

The major benefit of a trust is that it gives the grantor control over the disbursement of his or her assets. This is especially important for people who have young children or grandchildren.  Assets can remain protected until the child is old enough to be financially responsible.  The options for restricting the assets are endless.

Tax Benefits:

Testamentary trusts can have capital gains tax benefits.  Generally, a person who sells an asset for profit is required to pay a capital gains tax on the income generated from the sale.  However, if legal ownership of an asset is transferred from one person to another through a testamentary trust, the capital gain received by the beneficiary can be avoided.  Estate planners should always speak to a qualified tax professional or accountant to answer any questions they have about taxes.

Life Insurance:

Another advantage of a testamentary trust is that you can fund it with life insurance proceeds after death.  To do this, the grantor must name the beneficiary of the life insurance policy as the trust, or specifically as the trustee of behalf of the trust.  When the grantor dies, the life insurance policy will pay out into the trust.

Special Needs:

If a testator has a legatee who receives certain government benefits, such as SSI or Medicaid, it is wise to include special needs provisions which provide for distributions in a manner that will minimize the risk of loss of a beneficiary’s vitally needed government assistance

Spendthrift:

Spendthrift trusts allow grantors to control how their assets will be distributed after they pass away and are often used to protect beneficiaries from themselves.  This can be useful when beneficiaries are minors, have addiction problems, or they or their spouse have spending problems.

The trustee is given authority by the grantor to distribute funds either when they see fit or when certain predetermined milestones are reached, such as graduating from college or maintaining sobriety for a given period of time.  Spendthrift trust grantors include these provisions to protect their beneficiaries and to prevent them from being taken advantage of.

Spendthrift trusts can also be used to protect assets from a beneficiary’s creditors.  They are also useful to prevent beneficiaries from receiving large sums during a divorce or when a divorce seems imminent.  For this reason, creating a spendthrift trust is common in community property states like Louisiana.

New Orleans Estate Planning Attorneys:

We are a Gretna law firm that has served the New Orleans area since 1980.  Our estate planning lawyers are well versed at creating testamentary trusts.  We can help guide you through the process and advise you whether a trust would be beneficial to your situation.  We take pride in offering a personal and trusted experience.  Call us today for a free consultation and find out why so many of our clients come back to us.