When creating a revocable living trust (RLT), the goal is to ensure that assets are properly transferred into the trust during your lifetime or designated to pass into the trust upon death through a pour-over will. However, some estate plans also include provisions allowing a personal representative to create testamentary trusts within a pour-over will. This might seem redundant, but there are several strategic reasons for this approach.

Why Would a Pour-Over Will Include Authority to Create Testamentary Trusts?

1. Catching Assets Outside the Trust – Despite the best planning efforts, some assets may remain outside the revocable living trust at death. These assets will pass through probate and be distributed according to the terms of the pour-over will. If a testamentary trust is included as an option, it can provide an alternative structure for managing these assets rather than simply funneling everything into the RLT.
2. Backup Planning in Case the RLT is Invalid or Unfunded – If the revocable living trust is found to be invalid due to legal defects or remains unfunded because assets were never properly transferred, the pour-over will ensures that some estate planning structure remains in place. A testamentary trust can serve as a fail-safe mechanism to manage assets for beneficiaries.
3. Providing Immediate Asset Protection – Testamentary trusts take effect upon death and may offer asset protection benefits that a simple pour-over arrangement does not. In certain cases, this structure may be preferable for protecting a beneficiary’s inheritance from creditors, lawsuits, or even their own financial mismanagement.
4. Avoiding Certain Trust Administration Issues – If there is concern that the revocable living trust will terminate at death or that its administration may be complicated, a testamentary trust offers a simpler alternative to hold assets for minor or special-needs beneficiaries.
5. Contingency Planning for Specific Beneficiary Situations – Some estate plans include provisions allowing certain assets to bypass the RLT and instead be directed into a testamentary trust for specific beneficiaries. This could be beneficial if a beneficiary has special needs, creditor issues, a high-risk profession, or an unstable marriage.

How Do Testamentary Trusts Work If a Revocable Living Trust Exists?

1. Created Through the Probate Process – Unlike a revocable trust, which operates outside probate, a testamentary trust is created through a will and only comes into existence after probate is completed.
2. Funded with Probate Assets – If assets remain outside of the revocable trust at death and must go through probate, those assets may be directed into a testamentary trust rather than into the RLT.
3. Administered Under Court Supervision – Unlike an RLT, which is managed privately, testamentary trusts may require court oversight, depending on state law. This could be an advantage or disadvantage depending on the situation.
4. Used as a Backup or for Specific Beneficiaries – If the revocable trust fails for any reason or if the testator wants a separate structure for managing probate assets, a testamentary trust provides an alternative vehicle for estate administration.

When Might Testamentary Trust Authority Be a Good Idea?

• If there is a likelihood that assets will remain outside the revocable trust at death.
• If the testator anticipates changes to the trust but wants a safety net in the will.
• If there are specific concerns about beneficiaries that might not be addressed by the RLT.
• If there is a concern that the revocable trust may be contested or found invalid.

While the best practice is to ensure that all assets are properly transferred into the revocable trust during life, including testamentary trust provisions in a pour-over will can serve as a belt-and-suspenders approach to estate planning. It provides additional flexibility and safeguards to ensure that assets are properly managed for beneficiaries, no matter what happens with the trust or probate process.