Testamentary TrustThere are many different types of estate plans (and you should make sure that yours is custom-tailored to you and your family). One of the more common tools of estate planning is to use a trust for your assets. Using a trust offers many advantages for your estate, including saving your family from having to deal with a probate court or a large tax bill. While it sounds like it should be expensive, many trusts can be established for you that don't require extensive documents or overly complicated planning.

If you are considering a trust for your estate plan, have you considered a "Testamentary Trust" in your planning? Especially if you have young children, it can give you the benefits of having a trust, without the complexities of having to set it up immediately.

What is a Testamentary Trust?

A testamentary trust is a trust that is created in your will. Rather than be a separate document, it has terms that are spelled out in the pages of your will. Unlike a trust that you set up when you draft it, a testamentary trust only comes into existence when you die. This also allows you to modify the trust whenever you'd like while you are living. The trust becomes "Irrevocable" (unchangeable) after you die.

One of the most common types of testamentary trusts is one that is created for underage children. Many people don't want their 3-year-old to be inheriting the proceeds of their $5 million life insurance policy and instead set up a trust to manage the money for the child and to work with the child's guardian for when it is appropriate to distribute money for the care and support of the child.

Just like a standalone trust, your testamentary trust can be as simple or complex as your situation requires. For example, if your child has special needs and is receiving government benefits, you may want to use a testamentary trust to set up a special needs trust (although there may also be good reasons to set up a standalone trust instead).

Some things to Consider

When it comes to any aspect of your estate plan, it is important to talk to the professionals you work with to make sure you are designing an estate plan that properly protects your legacy in the manner that you want. When it comes to testamentary trusts, there are a few things you need to think about, like:

  • You can use your life insurance proceeds to fund the trust;
  • Be careful who you choose to be the trustee, they will have a responsibility (possibly for years to come if your children are young) and you want to be sure they are up to the task;
  • The trust is a good way to protect assets for your young children or grandchildren and you can specifically direct when and how they can receive their inheritance; and
  • If you truly want to avoid probate court, you should consider a standalone trust, which will not be included in the will that needs to be filed with the probate court when you die.

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Next Steps

If you'd like to get your estate plan in order and discuss how a testamentary trust (or standalone trust) can work for you, let's set up a complimentary Legal Strategy Session to discuss the best options for you and your legacy.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.
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