The Testamentary Trust

Pick an age, any age…

For married couples with minor children, I’ll oftentimes recommend drafting a “testamentary trust” into the will. When the first spouse dies, the surviving spouse takes everything (which usually occurs through joint titling anyway). When the remaining spouse dies, if the children are under a certain age—say, 21 or 25—the will states that the sole heir of the estate is a trustee. The will further designates that the trustee is to hold the property in trust for the benefit of the children. Once the youngest child reaches a certain age, the trustee is to distribute the remaining trust assets to the children.

What 18-year-old is good with money?

There are two big advantages to this setup. First, it allows you to prevent the children from having complete control over a potentially large inheritance at age 18. Suppose you and your spouse pass and are survived by two teenaged-children. Your will names a guardian, and that person is appointed guardian of your children. While the inheritance belongs to the children, the guardian still has a level of control over the money…but that automatically ends when the child turns 18. If, instead, you create a testamentary trust (with your will) and name the guardian as trustee, then the children do not automatically have full control over the inheritance at 18. You can designate any age you wish. And even though the money “belongs” to the trustee, the trustee is holding the money for the benefit of your children. The guardian cannot just do with the money what he or she pleases (there are protections in place in the law of trusts).

Flexibility

The second benefit of a testamentary trust is flexibility. Suppose that you don’t have a testamentary trust, and each teenaged-child receives one-half of your estate. One of the children contracts a disease and incurs substantial medical bills, eating up her share of the estate. Now, if that child decides to attend college, she has a hard time paying for it. But if a trust exists, the trustee has some discretion in how to distribute the assets. The trustee could use trust property to pay for the medical bills and still help that child pay for college. Your first thought might be, “That doesn’t seem fair to the other child.” But if you and your spouse were alive, you most likely wouldn’t say to the child that got sick, “Well, since you contracted this disease, we aren’t going to help you with college. That just wouldn’t be fair to your brother.”

Here to help

During your consultation with me, these are the sorts of things we talk about. I’m here to help take care of your loved ones.

–Joel Dendiu

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  1. Pingback: More On Trusts: Employing Their Flexibility | MISHAWAKA LAW

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