Creating a Plan with a Testamentary Trust Example
Learning about a testamentary trust or will trust can prevent future problems in the event of a death. This type of trust is set up through the deceased’s will. While a living will may avoid probate court, it is not possible to avoid probate courts with a will trust. This is because there are provisions that prevent significant assets from being entrusted to minor children in the unfortunate circumstances that both parents die.
The Most Common Example
The most frequent testamentary trust example is when the will is set up to manage the assets of someone incapable of managing their own. Often this is minor children. The trustees who are in charge of overseeing these funds are able to manage the inheritance or use the trust property for the benefit of the beneficiaries when needed until the assets can be divided at a predetermined time.
A Tax Savings Example
Another reason that people set up a will trust is that there are potentially large savings on estate taxes. A testamentary trust example is that in the event of a death, a testamentary trust creates two tax payers rather than one. This may include the surviving spouse or the trustee and the will trust. Two taxpayers create graduated marginal tax rates preserving the estate. This means that there are fewer income taxes that are owed and there may be significant savings.
Dealing with “Special Needs” Requirements
A testamentary trust example may also include those with “special needs.” These individuals may qualify for public benefits such as Medicaid, Supplemental Security Income, food stamps and HUD housing. In order to continue to receive this aid and remain eligible the funds in the trust may be set up to pay for things that are not covered while still allowing them to qualify for assistance. The money can be spent on homes, education, automobiles, care, therapy, vacations, monitoring, life skills counseling and more.
Designating Where the Funds Will Go
An additional benefit of a testamentary trust is that the money may be designated for certain conditions. For example, the money may be earmarked for medical expenses or college tuition. This means that the money goes directly where the deceased wants it to. There is nearly unlimited discretion in applying the funds and specifying provisions. The terms of the trust can also be changed if the situation changes simply by updating the will.
A will is a crucial part of any estate planning and financial planning. By setting up a testamentary trust, it is possible to fulfill your wishes in regards to how any inheritance funds will be dispersed. A lawyer can set up the trust in the will. In fact, a will and a trust can be set up through the same document. Upon death the testamentary trust becomes an irrevocable trust that is managed by a designated trustee. However, this person does not need to be the executor of the will as well.