Testamentary Trusts In Georgia: How To Set One Up

Testamentary Trusts In Georgia - What Is A Testamentary Trust In Georgia - How Do Testamentary Trusts Work

What are testamentary trusts in Georgia?

In this article, you’ll learn about: 

  • what a testamentary trust is
  • how they work
  • how they get taxed
  • the types available
  • when they get executed
  • testamentary trusts vs living trusts
  • alternatives to these trusts
  • how to set up a testamentary trust
  • the legal requirements for them

Let’s dig in.

Table of Contents

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What Is A Testamentary Trust?

A testamentary trust in Georgia is a type of trust that is created through a person’s will after they pass away. 

The trust comes into existence only after the person’s death and the will has gone through probate.

The will specifies the terms of the trust.

This includes how the assets are to be managed and distributed. 

It also names a trustee, who is responsible for managing the trust according to these terms. 

The trustee has a fiduciary duty to act in the best interest of the beneficiaries of the trust.

Beneficiaries are the people or entities who will receive benefits from the trust. 

This can include family members, friends, or organizations. 

The will can specify conditions for distribution, such as:

  • reaching a certain age 
  • meeting other specific criteria (i.e., graduating college or getting married)

Testamentary trusts can be used for many purposes in Georgia. 

Common uses of a testamentary trust are:

  • Providing For Minors: Testamentary trusts are often used to manage assets for beneficiaries who are underage. The trust can specify that funds be used for the child’s education, health, and general well-being until they reach a certain age or maturity level.
  • Caring For Dependents With Special Needs: If the testator has a dependent with special needs, a testamentary trust can provide for their care without interfering with their eligibility for government assistance programs.
  • Asset Protection: A testamentary trust can protect assets from the beneficiary’s creditors, divorce proceedings, or poor financial decisions. The trust’s assets are not considered the beneficiary’s personal property and are therefore often safe from such claims.
  • Providing For Adult Beneficiaries: If a beneficiary is financially irresponsible, has addiction issues, or is simply inexperienced in managing large amounts of money, the testator can use a testamentary trust to ensure the funds are not squandered and are used for the beneficiary’s best interests.
  • Education Trusts: Testamentary trusts can be set up specifically to fund the education of a beneficiary, ensuring the money is used strictly for educational purposes.
  • Controlling Asset Distribution: The trust can stipulate the terms and timing of asset distribution, ensuring the testator’s wishes are carried out as desired.
  • Charitable Giving: Testamentary trusts can also be used to provide a lasting legacy to charitable organizations or causes, with the trust distributing funds to the chosen charities as specified in its terms.
  • Tax Planning: In certain circumstances and jurisdictions, testamentary trusts can provide tax benefits, including avoiding estate taxes or providing income tax advantages to beneficiaries.

How Do Testamentary Trusts Work?

A testamentary trust works as a tool in a person’s will to manage and distribute their assets after they pass away. 

Here’s how it functions in straightforward steps:

  1. A person called the testator writes a will. In this will, they include instructions to create a testamentary trust.
  2. The testator specifies the assets to go into the trust. These assets might be property, investments, money, or other items of value.
  3. The testator names a trustee. A trustee is a person or organization that will manage the trust after the testator’s death.
  4. The testator also names beneficiaries. These are the people who will receive benefits from the trust.
  5. When the testator dies, the will goes through probate. This is a legal process to validate the will and finalize the testator’s affairs.
  6. Once probate is complete, the testamentary trust is officially created. The specified assets move into the trust.
  7. The trustee then manages the trust’s assets according to the instructions in the will. For example, they might distribute income to beneficiaries, or hold assets until certain conditions are met.
  8. Over time, the trustee distributes the trust’s assets to the beneficiaries as per the testator’s wishes until the trust is exhausted.

A testamentary trust helps ensure a person’s assets are managed and distributed as they wish after they pass away.

Testamentary Trust Taxation

A testamentary trust forms part of an individual’s will and comes into effect after their death. 

The trust’s income, generated by the assets it holds, is subject to income tax.

Trustees, the individuals managing the trust, must file an annual income tax return for the trust. 

This income tax return reports all income the trust earns.

When the trust distributes income to beneficiaries, the beneficiaries must report this income on their personal income tax returns. 

The trust issues a Schedule K-1 form to each beneficiary for this purpose. 

This form outlines the income that the beneficiary must report.

However, when a trust retains income and does not distribute it, the trust itself pays the tax. 

Trust tax rates may be higher than individual rates, so trustees often distribute most of the income to beneficiaries.

It’s essential to understand the specific rules of testamentary trust taxation. 

These rules can differ by country and can be complex. 

Working with a tax professional or financial advisor is often helpful to manage these responsibilities effectively.

Types Of Testamentary Trusts

There are primarily three types of testamentary trusts that you can establish in Georgia:

  • Standard Trusts: These are traditional trusts that take effect after your death. They distribute assets to the beneficiaries as you have defined in your will.
  • Minor Trusts: If your beneficiaries are under 18 years of age, you may opt for a minor trust. The trustee manages the assets until the minor comes of age, typically at 18 or 21 years.
  • Special Needs Trusts: If you have a beneficiary who has special needs, a special needs trust can protect their eligibility for certain government benefits. The trustee uses the trust funds to supplement the beneficiary’s needs.

Each type of trust serves a unique purpose and is subject to Georgia’s trust and estate laws. 

It is important to understand:

  • the responsibilities associated with being a trustee
  • the rights of beneficiaries under Georgia law 

To establish a testamentary trust, it needs to be included in your will, and it only takes effect after your death.

When Does A Testamentary Trust Take Effect?

A testamentary trust takes effect after the death of the person who created the trust. 

This timing is distinct from other types of trusts, which typically begin during the testator’s lifetime. 

The trust’s provisions, written into the testator’s will, only come into play after the will goes through probate. 

Probate in Georgia is the legal process of validating the will. 

Once probate finishes and confirms the will’s validity, the trust can start operating according to the instructions laid out in the will.

Testamentary Trust Vs Living Trust

How is a testamentary trust different from a living trust?

A testamentary trust is a type of trust that:

  • is created within a person’s will 
  • takes effect upon their death 

This kind of trust doesn’t exist while the person, also known as the testator, is alive. 

It’s used to manage the testator’s assets according to their wishes after they pass away.

A living trust is a trust that’s created and operates while the person, known as the trustor, is still alive. 

This type of trust can be modified, amended, or even completely revoked by the trustor during their lifetime. 

Without going through probate, a living trust helps:

Both trusts serve important roles in estate planning in Georgia

A testamentary trust can be useful when the testator:

  • wants to maintain control over their assets until death
  • has minor children or beneficiaries who may not be ready to receive the assets right away 

A living trust is beneficial when the trustor wants to:

  • maintain control over their assets during their lifetime
  • avoid probate in Georgia
  • provide a seamless transfer of assets upon their death

Advantages And Disadvantages Of Testamentary Trusts

Let’s look at some pros and cons of testamentary trusts. 

Testamentary Trust Advantages

  • Asset Protection: Testamentary trusts protect assets from creditors and legal judgments, keeping your wealth intact for your beneficiaries.
  • Probate Avoidance: Assets held in the trust bypass probate, ensuring a quicker distribution to the beneficiaries.
  • Control Over Asset Distribution: You set the rules of asset distribution, deciding when and how your beneficiaries receive their inheritance.
  • Tax Benefits: Depending on your jurisdiction, a testamentary trust may offer tax advantages, reducing the estate or inheritance tax burden on your beneficiaries.

Testamentary Trust Disadvantages

Some disadvantages you should be aware of are:

  • Time And Cost Of Setup: Establishing a testamentary trust requires time and legal expertise, resulting in upfront costs.
  • Irrevocability After Death: Once you pass away, the terms of the trust are irrevocable, meaning they can’t be changed.
  • Probate Process: Despite bypassing probate for distribution, the trust itself will still need to go through the probate process before it can take effect. This could potentially delay the implementation of the trust.

Alternatives To Testamentary Trusts

After reading the pros and cons of testamentary trusts, you might want different options. 

Here are good alternatives to testamentary trusts, depending on your situation:

  • Revocable Living Trusts: This type of trust allows you to maintain control of your assets during your lifetime and seamlessly transfers control to your designated trustee upon your death or incapacitation. Revocable trusts can be altered or revoked during your lifetime, offering greater flexibility.
  • Irrevocable Trusts: These are trusts that cannot be altered or revoked once created. They offer strong asset protection and tax benefits, but at the expense of flexibility and control.
  • Joint Ownership: Adding another person, such as a spouse, as a joint owner with rights of survivorship to assets can help avoid probate and transfer assets directly to the co-owner upon your death.
  • Pay-on-Death (POD) or Transfer-on-Death (TOD) Accounts: These designations allow your bank accounts or investment portfolios to be transferred directly to named beneficiaries upon your death, avoiding the probate process.
  • Gifts During Lifetime: Rather than leaving assets in a will or trust, you could give them directly to your beneficiaries during your lifetime. This approach can reduce the size of your estate and potentially minimize estate taxes, but requires careful planning to avoid gift tax implications.
  • Life Insurance Policies: The payout from a life insurance policy can provide financial support to your beneficiaries upon your death. The death benefit usually passes directly to the named beneficiaries without going through probate, similar to TOD or POD accounts.
  • Charitable Trusts: If philanthropy is a significant part of your financial or estate planning, establishing a charitable trust can provide tax benefits and allow you to make a meaningful impact.

How To Create A Testamentary Trust

Let’s talk about the legal requirements of setting up a testamentary trust in Georgia.

Legal Requirements For A Testamentary Trust

There are several key legal requirements for establishing a testamentary trust in Georgia.

  • Draft A Valid Will: The will should state the creation of the trust, outlining its terms and purposes.
  • Appoint A Trustee: You need to designate a person or entity in your will who will manage and distribute the trust’s assets after your death.
  • Specify Beneficiaries: Clearly identify in your will the individuals or organizations who will receive benefits from the trust.
  • Meet Georgia’s Will Requirements: The testator (you) must be at least 14 years old and mentally competent. The will must be written and signed by the testator. At least two competent witnesses must sign the will.
  • Probate Process: The testamentary trust becomes effective only after your death. The will containing the testamentary trust then goes through probate, where the court validates the will.
  • Regularly Review And Update: Make sure to revisit your will and testamentary trust periodically or following significant life changes, like marriage, divorce, the birth of a child, or the death of a trustee, to ensure it still reflects your wishes.

How To Set Up A Testamentary Trust In Georgia

The steps to set up a testamentary trust in Georgia are:

  1. Identify The Purpose Of The Trust: Decide why you need the trust. This could be to manage assets, care for a minor, or provide for a loved one with special needs.
  2. Choose A Trustee: Select someone you trust to manage the trust assets. This can be a family member, a trusted friend, or a professional trustee.
  3. Outline The Terms Of The Trust: Decide on the conditions of the trust. This includes who the beneficiaries will be and how the assets will be distributed to them.
  4. Draft The Trust: Include the testamentary trust in your will. The trust is typically a separate section within your will. It explains the trustee’s duties, the beneficiaries, and the terms of the trust.
  5. Review With Legal Counsel: Have a Georgia trust attorney review the trust and will to ensure they meet Georgia’s legal requirements.
  6. Sign And Store Your Will: Sign your will in the presence of two witnesses. Then, store it in a safe place where your executor can find it after your death.

After your death, the testamentary trust will be created during probate. 

The court will confirm the trustee, and the trustee will manage the trust assets according to your will’s terms.

FAQ About Testamentary Trusts In Georgia

Here are other questions our clients ask us about testamentary trusts in Georgia. 

Is A Testamentary Trust Revocable?

A testamentary trust is not revocable. 

It is a type of trust created by a will.

And it becomes active only after the death of the person who made the will. 

The testator is deceased when the testamentary trust comes into effect.

So, they are unable to make changes or revoke the trust. 

While the testator is alive, they can change the terms of the testamentary trust by amending their will. 

But, once the testator passes away, the trust’s terms are set and cannot be altered.

Is A Testamentary Trust Irrevocable?

Yes, a testamentary trust is irrevocable

This means once the trust is established, you cannot change or cancel it. 

This feature ensures that the deceased person’s wishes, as stated in the trust, are carried out. 

But, during the lifetime of the person who made the will, the testamentary trust is considered revocable, as it can be changed or canceled.

Does A Testamentary Trust Go Through Probate?

Yes, a testamentary trust does go through probate. 

This process happens because the trust forms part of the deceased person’s will. 

When the person dies, the will, including the testamentary trust, goes through probate. 

Probate is the legal procedure where a court validates the will. 

After validation, the court oversees the distribution of assets according to the will’s terms.

This includes establishing the testamentary trust. 

Once the trust is set up and funded with the probated assets, the trustee can then distribute the trust assets according to the trust’s terms.

Get A Testamentary Trust In Georgia

If you want help from a Georgia trust law firm, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

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