subject: Your Child Might Need A Testamentary Trust [print this page] Many parents desire to protect the welfare of their child even after their death, or rather, especially after their death. Parents who have children that are still underage might have a difficulty in planning their childs future when they are having a terminal disease. Though they still want to protect their child, they cannot anymore. But they can still have the option of a testamentary trust.
What is a testamentary trust?
A testamentary trust is a type of trust that parents usually create to protect the financial support of their minor kids until such a time when the child is able to manage the money on his/her own. During the times when the child is still unable to do so, a trustee will be in charge of the fund. The trustee is usually appointed by the creator of the fund in a will. But if there is no will that appoints a trustee, a friend or a relative of the child can act as a trustee by going to the probate court and apply. If nobody applies, then the court can decide and appoint a trustee. But obviously, it is still better if the trustee is a trusted and close friend of the child that is knowledgeable of the childs needs.
The trustee will be the one who will manage the trust and decide until the beneficiary has come to the age where he/she can do all of these herself. Most trustees do not have any real knowledge on the funds and needs frequent legal advice from lawyers or legal advisors. Due to this, the legal fees accumulate and are subtracted to the trust fund which leaves the beneficiary with little money left. Due to these events, most lawyers advise parents to prefer a revocable living will rather than the testamentary trust. But if parents have high life insurance but little money on hand, then the testamentary trust must just be what you need.
Setting up a testamentary trust is very easy. Just follow these steps:
Know the amount of your assets. If you share your assets with your husband, then you might not have enough individual assets to set up your testamentary trust.
Ask your attorney to include your testamentary trust in your will. Since your testamentary trust will only be known after the time of your death, then your will be the best avenue for your testamentary trust.
Set a testamentary trust for every beneficiary you have. Setting one testamentary trust for all your beneficiary will result to a high tax bracket. Compared to one testamentary trust for each beneficiary which will result to lower lowest tax bracket.
A testamentary trust for your spouse is also possible. So when your partner dies, all your shared assets will go to your spouse. And when the spouse dies, she can be the one to decide the beneficiary of the asset.
Setting up a testamentary trust can good for your childrens financial security, so while still able, think of whether your child needs one.
by: Lam Seina
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