Testamentary Trusts

There are a number of reasons why you may want to consider creating a trust subsequent to the time of your death. Using what is known as a testamentary trust is a good way to ensure that your assets will provide the most benefit for your surviving heirs. The term encompasses many different arrangements in which your assets, subsequent to your death, can be placed in the care of a trustee for a specific beneficiary or group of beneficiaries. A testamentary trust is created at the time of your death and becomes irrevocable at that time. The burden falls on your shoulders to select the terms that are included within the framework of your trust. This gives you a unique opportunity to sculpt a plan that will best serve your family in the future.

Your testamentary trust can be crafted within the framework of your will or in a revocable living trust. Many married couples use this tool in order to make certain that they utilize the federal estate tax exclusion [currently $5,430,000] in order to protect the decedent's portion of the estate from further taxation in the surviving spouse's estate. It also acts as a tool to make certain that at the time of the death of your spouse that the funds must pass to the beneficiaries designated by your estate planning document. If your spouse remarries, then you can be certain that your largess will not pass to their new spouse. If your spouse lacks the ability to adequately manage the funds, the testamentary trust will allow you to select an independent trustee to work individually or in conjunction with your surviving spouse to manage the distribution of both the income and principal of the trust.

If you have children who are either underage or incapable of managing the assets left to them by your estate planning documents, you can utilize the testamentary trust to both hold and disperse the trust funds to your children or other descendents. There is a vehicle called a generation-skipping trust which will allow you to leave the funds in trust for your children's lives and ultimately pass those assets to your grandchildren without inclusion in your children's estate. If your grandchildren have been born at the time of your death, you may have the good fortune of allowing the trust to continue for a protracted period of time or even their lifetime if the state in which you live at the time of your death does not recognize the rule against perpetuities.

If your spouse needs to stay in a long term care facility or if a child were to suffer from a disabling event then if properly crafted the testamentary trust would not be subject to the claims of either the government or their creditors. You can craft the trust so that the principal can be made available for your beneficiaries' health, support, maintenance, or welfare. The trustee would have full authority to make distributions to the beneficiary based on ascertainable standards. Income can either accumulate within the trust or it can be distributed to your beneficiaries. Keep in mind that a trust has a very low threshold for a very high tax rate. In essence, you are penalized for retaining too much income within the trust confines. A very good use for a testamentary trust is for those family members who suffer from an addictive personality. In this way you can protect the family member and make certain that they have appropriate living accommodations and funds to live a comfortable life. At the same time, it will protect the family member from their own indiscretions as it pertains to financial matters. In these cases, I highly recommend that you utilize a non family member or corporate trustee to help to administer the trust for those beneficiaries with addictive personalities.

The trust instrument gives you the opportunity to make funds available for specific educational purposes or philanthropic purposes. Many folks will create a foundation or leave a portion of the funds in trust for philanthropic purposes. Keep in mind that there is a concept which has been adopted in many states throughout the country. It permits you to establish a trust for the benefit of your pet. The key to implementing a testamentary trust is to make certain that you do your pre crisis planning well in advance of a disabling event or your death. In this way you can ensure that your hard earned assets will be used to the maximum benefit of your descendents.


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