The Benefits and Pitfalls of Planning a Testamentary Trust
They say when you die, you cant take it with you. If you have a testamentary trust or will trust, it is possible to dictate exactly where and how the assets will go. While most wills leave assets to a surviving spouse or surviving children, it is possible to place conditions on when any proceeds will be received. This prevents young children or other people from receiving large amounts of money before they are financially and emotionally capable of handling the funds.
Why a Trust Should be Considered
Children are often not equipped to handle large sums of money when they turn eighteen if both parents die. A testamentary trust can be established so that a designated trustee can be appointed until the children reach a certain age, protecting the assets. During the period of time that the children are under the trustees jurisdiction, the trustee is subject to supervision by the probate courts.
The Problem with Becoming a Trustee
While having the safeguard of court supervision for this type of trust can be beneficial for those unfamiliar with their duties, being required to report to the probate court annually requires a commitment. In addition, many trustees may require legal assistance from an attorney in order to understand these duties. These legal fees can be expensive when added to the judicial fees that are required by the courts.
Setting Up a Will Trust
Building a testamentary trust requires legal help as well. A properly drafted trust may be 20 pages or more. This is because there are several situations and questions that must be answered and this type of trust is very complex. However, for those with young children and large insurance policies, setting up the trust is less expensive than hiring an attorney to handle a probate estate.
The Benefits of Setting up a Will Trust
The main benefit received from setting up a testamentary trust is the ability to have a responsible adult manage a persons inheritance until they are old enough or capable enough to handle it themselves. There is also minimal cost associated with setting it up beyond the initial legal fees to draft the will. However, there may be future costs associated with the trust once it is in place. In addition, there is also the potential to create possible estate tax savings and flexibility to ensure that final wishes are carried out.
While most people do not require a testamentary trust, it may be a benefit to families with young children. By preparing for problems that may arise from an untimely death, it may prevent unintended consequences. It is important to consult with a lawyer in order to set up a proper trust. While this may seem expensive initially, the cost is far less than the alternative of having to deal with the legal system later. The downside of this type of trust is that it is potentially expensive for the Trustee to maintain the will trust.