A lot of people assume that trusts are complicated legal instruments that are very expensive to create, they are simply not necessary unless you are a multimillionaire. In fact, this is really not the case at all. There are various different trusts that can satisfy relatively routine objectives.
In this post, we are going to look at the testamentary trust. This device can be ideal if you are planning your estate as a parent of minor children, and it can serve some other purposes.
A Trust in a Will
You may think of a trust versus a will as an either/or equation, and this makes sense on the surface. Why would you need two different legal devices to accomplish the same objectives?
The testamentary trust is in fact a trust that is contained within the terms of a will. While you are living, the assets that are going to be conveyed into the trust would still be in your personal possession.
In the will, you would name an executor to act as the estate administrator after you are gone, and you would include the testamentary trust in the will. It would instruct the executor to establish the trust after your death, and you would designate a trustee to administer the trust.
The executor can also act as the trustee, and this would be an efficient way to go, but it is not necessary. It may also be impractical depending on the life expectancy of the executor as compared to the beneficiary of the testamentary trust.
This type of trust is often used by parents that have dependent children that are not old enough to handle direct inheritances.
If you have a life insurance policy, you could make the trust the beneficiary. The trustee would use the funds to provide for your children in accordance with your wishes.
Another reason to use a testamentary trust would be to provide resources for a person that is relying on need-based government benefits like Medicaid. The individual in question could be a senior citizen or someone that is disabled.
A will is admitted to probate, which is a legal process that takes place under the supervision of a court. Even if there is a testamentary trust, the court would be involved in the administration process.
Living Trust vs. Testamentary Trust
An alternative to the testamentary trust, which would be created after your passing, is the revocable living trust. With the latter option, you would establish the trust while you are still alive.
You would act as the trustee while you are living, so there would be no loss of control of the assets in the trust. Your heirs would be the beneficiaries, and you could name a minor as a beneficiary of a living trust.
It is also possible to have a testamentary special needs subtrust within the living trust to set aside assets for the benefit of a person with a disability that is enrolled in government benefit programs.
A major advantage of using a living trust instead of a testamentary trust is the avoidance of probate. Probate is time-consuming, and there are expenses that accumulate during the process, so many people take steps to avoid it.
Take Advantage of Our Free Worksheet
We have prepared an estate planning worksheet that you can go through to gain a more complete understanding of the process. Many of the people that have used it give us positive feedback, and it is offered free of charge, so you should definitely take advantage of this opportunity.
You can get your copy right now if you head over to our worksheet access page and follow the simple instructions.
Need Help Now?
It is important to digest all of the necessary information, but at some point, it is time to take direct action. If that time is now, we can help you develop a custom crafted plan that ideally suits your needs.
You can schedule a consultation appointment if you call us at 513-721-1513, and you can fill out our contact form if you would like to send us a message.