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What Is a Testamentary Trust and Do You Need One?
Understanding Testamentary Trusts and Their Benefits
“Utilization of a testamentary trust for the surviving spouse is an excellent idea, whether the survivor is the husband or wife.”
A couple doing some retirement planning has an updated will and a medical power of attorney in place, prepared with the help of an estate planning attorney. They own some rental property, a small business and life insurance, but their estate is not large enough for them to worry about the federal estate tax.
Do they need or want a trust to be part of their estate plan? That’s question from a recent article titled “It’s the law: Testamentary trusts provide protection for assets” from the Post Register.
Different Types of Trusts in Estate Planning
First, there are many different types of trusts. A living trust, also known as a revocable trust, irrevocable trusts and testamentary trusts are just three types.
Testamentary Trusts as a Protective Measure for Assets
The testamentary trust only comes into effect at death under a last will and testament, and in some cases, depending on how they are structured, they may never come into effect, because they are designed for certain circumstances.
Ensuring Proper Distribution of Assets in Blended Families
If you leave everything to your spouse in a will or through a revocable trust, your spouse will receive everything with no limitations. The problem is, those assets are subject to claims by your spouse’s creditors, such as business issues, a car accident, or bankruptcy. The surviving spouse may use the money any way he or she wishes, during their lifetime or through a will at death.
Addressing Special Circumstances with Trusts
Consider if your spouse remarried after your death. What happens if they leave assets that they have inherited from you to a new spouse? If the new spouse dies, do the new spouses’ children inherit assets?
By using a trust, assets are available for the surviving spouse. At the death of the surviving spouse, assets in the trust must be distributed as directed in the language of the trust. This is especially important in blended families, where there may be children from other marriages.
Tailoring Your Estate Plan to Your Specific Needs
Assessing Your Estate and Potential Risks
Trusts are also valuable to distribute assets, if there are beneficiaries with an inability to manage money, undue spousal interference or a substance abuse problem.
Working with an Estate Planning Attorney to Create a Customized Plan
Note that the trust only protects the decedent’s assets, that is, their separate property and half of the community property, if they live in a community property state.
Protecting Business Owners and Their Assets from Litigation
The best solution to the issue of how to distribute assets, is to meet with an estate planning attorney and determine the goal of each spouse and the couple’s situation. People who own businesses need to protect their assets from litigation. It may make sense to have significant assets placed in trust to control how they pass to family members and shield them from possible lawsuits.
Estate Planning Legacy Planner
Everyday, we work with people who have lost someone they care about. There is so much these folks have to organize and manage. This planner organizes the information they will most need, in our experience, saving so much time and unnecessary cost. Besides organizing your information, it's so important to have a good estate plan that will keep your family out of court and conflict.
Please use the button below to receive a free copy of our Estate Planning Legacy Planner, an organization tool essential to any estate plan designed to help your loved ones take care of you and handle your affairs.
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