Family

What is a Testamentary Trust?

Simply put, a testamentary trust is a trust that is written into a Last Will & Testament.  The trust does not come into existence until the Will is probated. Testamentary trusts can be created for a variety of reasons.  Here are a few reasons a person might want to set up a testamentary trust in their will:

 

  • The beneficiary receives public entitlements and receiving the funds would disqualify them from these public entitlements. This type of trust is called a supplemental or special needs trust.
  • The beneficiary is a young child and the parent does not want their child receiving a substantial sum of money at the age of 18 or 21. Instead the trust can specify that the child shall receive the money at a later age like 30 or 35 years old.
  • The beneficiary is not financially savvy. The trust would specify a trustee who would help ensure the money was not spent immediately on frivolous items.
  • The beneficiary has many creditors. The trust would prevent creditors from reaching the property or cash in the trust.  This type of trust is called a spendthrift trust.

 Daredevil Dan Example:

Daredevil Dan has a 17 year old son named Charlie.  Charlie loves luxury sports cars. All he talks about are Lamborghini’s, Ferraris, and McLaren’s.   While paragliding in Patagonia, Daredevil Dan flew right into a mountain and that was the end of Daredevil Dan.

Daredevil Dan went to Ira K. Miller & Associates for estate planning.  He decided to set up a testamentary trust in his Will for his son, Charlie, so that Charlie would receive the money from his estate when he was 30.  He named his friend, Donald, the trustee of Charlie’s trust.  Instead of Charlie inheriting the money and immediately spending it on a luxury sports car, Donald now controls Charlie’s money. According to the terms of the trust Donald can spend the money on Charlie’s health, education, maintenance, or support. Donald spent the trust money on sending Charlie to college.

 

Contact Ira K. Miller & Associates for all your questions regarding Estate Planning and trusts.