Many of us have heard of a trust and have a general idea of how they work. This article is intended to give you an idea of how trusts can be used as estate planning tools. If you are unfamiliar with what a trust is, you may want to read this article first.
A quick lesson in vocabulary: the Settlor is the person supplying the money to the trust and creating the initial rules for how it should be distributed. Beneficiaries receive the benefits of the trust and collect the proceeds. The Trustee is the person who holds the money and makes sure it is distributed to the beneficiaries. Testamentary means anything having to do with your possessions after you have died (hence the “Last Will and Testament”).
Living trusts are those that are funded while you are alive. The legal name for these is “inter vivos” trusts. Inter vivos trusts can be an important part of your financial plan.
Testamentary trusts, on the other hand, are not funded until after your death. These trusts can be created through your will and funded with proceeds from your estate. Testamentary trusts are an important part of your estate plan.
Why do we recommend using testamentary trusts?
Picture this, you pass away and using a traditional will, leave all of your money and worldly possessions in equal parts to your two kids and your business partner. Maybe your business partner chooses to invest the money and finds a way to make it last for years to come, giving her a nice retirement nest egg. One of your kids on the other hand, buys a new boat with their money and is left with nothing to help her pursue her future goals. Your other child buys a house but falls behind on payments, so the bank comes after his inheritance. Chances are this is not what you intended to have happen with your hard earned money, but this is what can happen when you do not utilize a testamentary trust.
Leaving your money in a testamentary trust will ensure that the people you leave your money to will have the long-term benefits of someone with forethought and self-restraint. A testamentary trust can be protected from creditors and distributed over a number of years. We can also set up a trust that will trigger payments upon certain life achievements, such as graduation and getting married. Furthermore, we can handle certain life challenges, such as substance abuse and addiction, by triggering a freeze on payments until the person seeks counseling. Testamentary trusts are vital to your estate plan when minor children are involved.
Each state has specific requirements on how long the trust can survive and what criteria may be used to determine distribution, so be sure to consult an experienced attorney in your area before making specific plans regarding your testamentary trust. The attorneys at Griffith Law Group strive to stay on top of the ever-changing rules for estate planning. We are here to answer your questions and ease your concerns.
If you want greater control over the way your money will be distributed after you are gone, consider adding a testamentary trust to your estate plan.
