I was recently introduced to new clients who told me they had a “will-trust.” I assumed they had both a will AND a trust because that is the norm for estate planning in California. That is, a “pour over will” and a revocable or “living” trust. However, that is not what they had. As they told me they really had a will-trust… or more accurately a testamentary trust.
Let me start by saying that a testamentary trust is fine for basic planning when the clients want an estate plan but do not want to spend the money on a full living trust. However, there are basically no instances where a testamentary trust is suitable for people with assets. This is because there will be a full probate at the first death. Let me repeat that last sentence… there will be a FULL PROBATE at the FIRST DEATH! This is because people with assets need a trust that divides into two sub trusts at the death of the first spouse. However, to have this split trust in a will creates a probate need at the first death.
In my opinion a testamentary trust is bad as it causes an unnecessary probate at the second death. However, then to also have it split into sub-trusts at the first death causing a probate there is borderline malpractice! Ok, maybe it’s not malpractice but it’s definitely, 100%, taking advantage of the clients. A fully informed client would almost never choose a testamentary trust that split into a survivor’s and a bypass trust (or an “A” and a “B” trust) if they knew they would be creating probates at BOTH deaths in addition to fees for trust administration.
Interestingly in this case guess where the original will is? You guessed it, at the drafting lawyer’s office! It is my personal opinion that creating a testamentary trust in this fashion is borderline unethical and certainly not within the community standards of California estate planning attorneys in the modern time. Yes, there was a time, about the 1940′s, where this was standard estate planning… but NOT now. It’s simply wrong.
If your attorney is suggesting you get a testamentary trust that splits into two sub trusts at the first death then I recommend you get a second opinion. I don’t think two competent estate planning attorneys would recommend this.