Yes, testamentary trusts are still around in Michigan these days although they are not as common.
Setting Up a Trust During Your Lifetime or Upon Your Death
A testamentary trust is dormant and does not spring into existence until you die – it is created under your Will, which tells your Personal Representative to create a Trust). It does not hold or own any assets until your death. Your Will, for instance, might specify that your Estate be split among several testamentary trusts of the benefit of your beneficiaries and you can direct how those trust funds should be administered and distributed during the beneficiaries’ lifetimes and after their deaths.
A Revocable Living Trust, on the other hand, is set up by you during your lifetime and exists while you are alive and after you pass away. And just as with a testamentary trust, you can split the Trust assets among your beneficiaries and control how those assets are to be further distributed (e.g., split into additional separate Trusts or to be distributed outright). But once you establish a Trust during your lifetime, you have to “fund” it with certain assets and only those assets in the Trust will be distributed to your beneficiaries.
Control and Protection
Placing your assets in Trust – whether during your lifetime or whether in a testamentary trust – allows you to direct and control how those assets are to be managed and distributed.
Additionally, testamentary trusts as well as Revocable Living Trusts often contain language in them that prohibit a beneficiary from transferring his or her interest in the trust, and prevents his or her creditors from reaching it. This is another general benefit that Trusts offer over outright distributions.
Probate Is Guaranteed With Testamentary Trusts
One major difference between testamentary trusts and living trusts is that a testamentary trust does NOT help you avoid probate. Probate will be required to facilitate the transfer of your probate assets to the testamentary trust after your death.
On the other hand, if you have a Revocable Living Trust set up during your lifetime, and it is properly “funded”, then you should not have any probate.
For more information about probate and Trusts, in general, please see here.
I encourage you to contact me with any questions or to learn more about any other estate planning services.